Quick Answer
With a reverse mortgage you make no required monthly payments, so the interest charged each period is added to your loan balance instead of being paid off. That means the balance grows over time and the interest compounds (you accrue interest on previously added interest). Because a HECM is non-recourse, however, you or your heirs never owe more than the home's value when the loan is repaid — even if the balance grows past what the house is worth.
The Opposite of a Normal Mortgage
With a traditional ('forward') mortgage, you make monthly payments and the balance shrinks. A reverse mortgage flips this: you receive money and make no required monthly mortgage payments, so the interest that accrues each month is added onto the balance. Over the years the amount owed rises while — ideally — your home continues to appreciate. You still own the home the whole time.
How Compounding Works Here
Because the interest isn't paid each month, it gets added to the balance and then future interest is charged on that larger amount. This is compounding: you accrue interest on both the money you've drawn and on the interest already added. It's why the balance grows slowly at first and faster later. Only the funds you've actually drawn accrue interest — money left untouched in a line of credit isn't charged interest (and the available credit even grows).
Fixed vs. Adjustable Rates
Reverse mortgages come with fixed or adjustable rates. A fixed rate generally requires taking a single lump sum at closing. Adjustable rates are what allow the flexible options most people want — the line of credit and monthly payments — and they move with an index over time. Your loan estimate will show the current rate and, for adjustable loans, the cap on how high it can go.
The Non-Recourse Protection
This is the most important safeguard: a HECM is a non-recourse loan. No matter how much the balance grows, neither you nor your heirs will ever owe more than the home is worth when the loan is repaid. If the balance ends up higher than the sale price, FHA insurance covers the difference — never your other assets or your family's. This is why the growing balance, while real, is not the danger it first appears to be.
Can You Slow the Balance From Growing?
Yes. You're allowed to make voluntary payments toward interest or principal at any time, with no penalty, which slows the balance's growth and (with a line of credit) can even free up more available credit. Many borrowers never pay anything and let the loan ride; others make occasional payments to preserve more equity for heirs. Both are valid — it's your choice.
