What’s a reverse mortgage—and how common are they in NYC?

April 2, 2024 – Media Mention
Brick Underground

Herrick partner, Andrew Freedland, was quoted in a Brick Underground article explaining how reverse mortgages work when purchasing an apartment in New York City, and the possible risks and benefits that accompany this type of financing. 

In a reverse mortgage, a bank gets more equity in your apartment in exchange for paying out part of the value of the unit. Unlike a traditional mortgage, you don’t make regular payments to the bank until the loan becomes due, says Andrew.

"In a classic forward mortgage, you make monthly payments of either principal or principal with interest," Andrew clarified. "[A reverse mortgage] is the opposite."

There are risks associated with reverse mortgages. Specifically, the interest on these loans is compounded, borrowers pay interest on the principal and on the interest already accrued. "The balance continues to grow because you’re putting interest on top of interest," Andrew explains. 

While reverse mortgages are gaining popularity amongst condo and co-op buyers, they are still rare. "A lot of boards are looking at it, but they don’t understand the animal," Andrew notes. "They’re asking whether they should permit this in their building… I think that every co-op needs to look at their building and their shareholders to determine how to address this."

Read the full article in Brick Underground here.