Reverse Mortgage Legacy Erosion Modeler

Model how aggressive compounding interest destroys generational estate transfers over decades.

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The Compounding Debt Problem

Here is what happens with products like the CHIP Reverse Mortgage: you borrow a tax-free lump sum against your home value at near 8% interest, with no monthly payments required. However, the interest compounds semi-annually.

Without payments pushing down the principal, the debt trajectory scales exponentially while housing appreciation scales linearly. Over 15 years, the bank mathematically strips the vast majority of your estate equity.

The Compound Debt Formula

Your debt grows using the standard compound interest formula, but because you never make a payment to reduce P, the growth is unmitigated.

DTotal future debt balance
PInitial loan amount (lump sum)
rAnnual interest rate (e.g., 0.08)
nCompounding periods per year (usually 2 for semi-annual)
tNumber of years

Manual Example: 10 Years of Erosion

You take a $150,000 reverse mortgage at 8% interest compounded semi-annually for 10 years.

1
1. Setup Variables
Define the terms.
P = \$150,000, r = 0.08, n = 2, t = 10
2
2. Calculate Multiplier
The debt will multiply by 2.191x over 10 years.
\left(1 + \frac{0.08}{2}\right)^{2 \times 10} = (1.04)^{20} = 2.191
3
3. Apply to Principal
Multiply your initial borrowing by the compound factor.
\$150,000 \times 2.191 = \$328,650
4
Result
You borrowed $150k, but you now owe over $328k. The bank extracted nearly $180k in interest from your estate.
\$328,650 \text{ Total Owed}

Frequently Asked Questions

What is a reverse mortgage?
A reverse mortgage is a loan secured against the value of your home that requires no monthly mortgage payments. Instead, the interest is added to the loan balance, causing the debt to grow significantly over time. It is repaid when you move, sell, or pass away.
Why does the debt grow so fast?
Because you are making no payments, the high interest (often 7-9%) compounds semi-annually. You end up paying interest on the accumulated interest. This exponential growth outpaces average linear home appreciation.
Can I owe more than my house is worth?
In most jurisdictions (like Canada and the US), legitimate reverse mortgages are "non-recourse" loans. This means you or your estate will never owe more than the fair market value of the home when it is sold. However, you can easily end up leaving zero equity to your heirs.

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