What Is the Initial Interest Rate of a Reverse Mortgage?

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The initial interest rate of a reverse mortgage is the rate listed on your mortgage paperwork that helps calculate interest accruing on the loan's outstanding balance.

Key Takeaways

  • Your initial interest rate is also known as your note rate or IIR. 
  • With a fixed-rate reverse mortgage, your initial interest rate never changes. 
  • If you have a variable-rate reverse mortgage, your interest rate may get higher or lower than your initial interest rate.

How the Initial Interest Rate of a Reverse Mortgage Works

When you first sign up for a reverse mortgage, an interest rate is listed on your paperwork. If you have a variable-rate loan, the lender uses this initial interest rate (IIR) to calculate future interest changes.

An adjustable-rate loan’s initial interest rate relies on the index and margin. When you sign the loan, these numbers are added to calculate your interest rate. The initial interest rate of your reverse mortgage is what you’ll be charged during the first index rate period. This could be a month or a year. If you have a fixed-rate reverse mortgage, the initial interest stays the same throughout the loan’s lifetime.

The index is an external financial indicator, like the London Interbank Offered Rate (LIBOR) or the Secured Overnight Financing Rate (SOFR). It’s a benchmark that lenders refer to when calculating interest rates. If your reverse mortgage is an HECM through the Federal Housing Authority (FHA), the index used is likely the SOFR. You can look at your loan paperwork to see which index is used.


Your loan documents will include another interest rate: the expected interest rate (EIR). This is an estimate of future interest rates your lender uses to determine how much of your home’s equity you can withdraw. A higher EIR reduces the amount you can access while a lower EIR increases it.

Your lender sets the margin. This number stays the same and won’t change during the life of your loan. When shopping for a reverse mortgage, you’ll want to compare the margin from each company and try to find a low one.

After the initial period, the initial interest rate is what your lenders will refer to when calculating the new interest rate. However, that rate changes based on the index. With an adjustable rate, if the index goes up, your interest rate goes up, too. But if the index decreases, so does your interest rate.


The LIBOR index from the United Kingdom has been a standard index for many products, including reverse mortgages. But this index is being phased out. By June 2023, all mortgage companies must refer to a different index.

Example of an Initial Interest Rate of a Reverse Mortgage

Let's say you took out a reverse mortgage with a lender with a 4.875% margin. At the time of your loan initiation, the SOFR was 1.05%. To calculate your initial interest rate, your lender adds those two numbers:

4.875% + 1.05% = 5.925%

With these numbers, your initial interest rate would be 5.925%. You'd keep this rate for the first index period, then your lender would recalculate by adding the new index to the stable 4.875% margin.

Ask how often your interest rate gets recalculated. With this information, you can better understand how much equity you could lose over time, and how much you’d potentially owe in the future.


A fixed-rate reverse mortgage avoids changing rates. In the above example, the rate is 5.925% from initiation to end.

Frequently Asked Questions (FAQs)

Is interest on a reverse mortgage compounded?

Yes, interest compounds over a reverse mortgage’s lifetime. The longer you have a reverse mortgage, the more interest accrues on the loan. Each month, the unpaid interest is added to the principal balance of the loan, which means you could owe more than the value of your home if you live long enough.

Compounded interest isn’t the only thing that can increase your loan balance. You’ll also have servicing fees and an annual mortgage insurance premium payment. Read all the details of your loan to know what to expect.

What is the initial interest rate of a HECM loan?

The initial interest rate for an HECM loan is the index plus margin.  A home equity conversion mortgage, or HECM, is another term for a reverse mortgage, and is only available through FHA lenders.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Consumer Financial Protection Bureau. "For an Adjustable-Rate Mortgage (ARM), What Are the Index and Margin, and How Do They Work?"

  2. HUD. "LIBOR Index Removal and SOFR Index Approval for New HECM ARMs and Other Changes for HECM ARM Originations."

  3. Consumer Financial Protection Bureau. "The LIBOR Index for Adjustable-Rate Loans Is Being Discontinued: Here’s What To Watch For."

  4. Consumer Financial Protection Bureau. "What Is a Reverse Mortgage?"

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