1. What is HECM Reverse Mortgage Interest?

HECM (Home Equity Conversion Mortgage) reverse mortgage interest is the monthly interest charged on the outstanding loan balance, calculated using the sum of the interest rate and mortgage insurance premium divided by 12.

2. How Does the Calculator Work?

The calculator uses the HECM interest formula:

Where:

• \( Balance \) — Outstanding loan balance (dollars)
• \( r \) — Interest rate (decimal)
• \( MIP \) — Mortgage insurance premium rate (decimal)

Explanation: The formula calculates the monthly interest by multiplying the balance by the sum of the interest rate and MIP, then dividing by 12 months.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for understanding the cost of a reverse mortgage, projecting loan growth, and making informed financial decisions about home equity conversion.

4. Using the Calculator

Tips: Enter the current loan balance in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and MIP rate as a decimal. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is MIP in a HECM reverse mortgage?
A: MIP (Mortgage Insurance Premium) is an insurance fee charged by the FHA to protect lenders against borrower default and ensure program stability.

Q2: How often is interest calculated on a reverse mortgage?
A: Interest is typically calculated monthly and added to the loan balance, which compounds over time.

Q3: Can the interest rate change during the loan term?
A: Yes, HECM loans can have adjustable interest rates that change based on market conditions, within specified limits.

Q4: How does interest affect the total loan balance?
A: Interest accrues monthly and is added to the loan balance, causing the amount owed to increase over time.

Q5: Is the interest on a HECM loan tax-deductible?
A: Interest on reverse mortgages is generally not tax-deductible until the loan is partially or fully repaid.