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Accounting for Reverse Mortgages

A reverse mortgage is a loan with no regular payment required, but equity may be cashed out through regular payments from the lender to the borrower. Contrast this to a traditional mortgage, in which there is one large principal advance at the beginning and many (usually monthly) payments over the life of the loan. In a reverse mortgage, the advances are small and periodic, and all repayment occurs upon the sale of the property or the death of the owner.

The reverse mortgage usually involves a line of credit for an amount equal to some percentage (80% for example) of the available equity. Depending on the terms of the loan, the borrower may take advances as needed, or may have a set monthly automatic advance. This second situation, which makes the loan look like a standard mortgage in reverse, is the reason these are called reverse mortgages...

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