The idea that a reverse mortgage will automatically “eat up all the equity” in a home is one of the most common misconceptions I hear. As this example shows, even with an interest rate of 8.95% and no payments being made, steady home appreciation can preserve and even grow equity over time. Every situation is different, but the numbers demonstrate an important point: a reverse mortgage is simply a loan, and like any loan, the long-term outcome depends on home value trends, time in the home, and how the loan is used. For many homeowners in markets like Silicon Valley, the equity story can look very different than the myths suggest.
- Starting home value: $1,544,000
- Home appreciation: 4% per year
- Starting loan: $290,000
- Loan interest: 8.95% per year
- No payments (loan compounds)
- Equity = Home Value − Loan Balance
Values rounded to the nearest $1,000 for readability.
| Year | Home Value | Loan Balance | Equity |
|---|---|---|---|
| 0 | $1,544,000 | $290,000 | $1,254,000 |
| 1 | $1,606,000 | $316,000 | $1,290,000 |
| 2 | $1,670,000 | $344,000 | $1,326,000 |
| 3 | $1,737,000 | $375,000 | $1,362,000 |
| 4 | $1,806,000 | $409,000 | $1,397,000 |
| 5 | $1,878,000 | $445,000 | $1,433,000 |
| 6 | $1,953,000 | $485,000 | $1,468,000 |
| 7 | $2,031,000 | $528,000 | $1,503,000 |
| 8 | $2,113,000 | $576,000 | $1,537,000 |
| 9 | $2,197,000 | $627,000 | $1,570,000 |
| 10 | $2,285,000 | $683,000 | $1,602,000 |
| 11 | $2,377,000 | $744,000 | $1,633,000 |
| 12 | $2,472,000 | $811,000 | $1,661,000 |
| 13 | $2,571,000 | $883,000 | $1,688,000 |
| 14 | $2,673,000 | $963,000 | $1,710,000 |
| 15 | $2,780,000 | $1,049,000 | $1,731,000 |
| 16 | $2,892,000 | $1,142,000 | $1,750,000 |
| 17 | $3,007,000 | $1,244,000 | $1,763,000 |
| 18 | $3,128,000 | $1,356,000 | $1,772,000 |
| 19 | $3,252,000 | $1,477,000 | $1,775,000 |
| 20 | $3,383,000 | $1,609,000 | $1,774,000 |
