@fredsbend, Hope this helps!
"I understand that a reverse mortgage can be paid out in two ways: A lump sum and monthly payments. I figure that if you take the lump sum, eventually, the bank wants you to start paying it back."
Answer: Actually, there are 3 payout options, or 4 if you consider a combination payout as another one. There's a lump sum, a line of credit, or the monthly payout, or a combination.
"I figure that if you take the monthly payments, eventually, the bank stops paying out and wants you to pay it back. In both situations, interest accrues and this is how the bank makes money off of the deal".
Answer: The only time the monthly payments would stop would be if the borrower defaults on the lenders' terms or they no longer live at home. You are right though, and interest does accrue on whichever payment is decided on. I'm not sure how the lender makes money, probably by the interest, but I know borrowers are protected against high rates and owing more than your house. Here's an article I found that goes over the protections more in detail: https://www.americanadvisorsgroup.com/news/6-consumer-protections-reverse-mortgage-loan-borrowers.
"But what determines when you have to begin paying back the reverse mortgage? Some sources online seem to say that it's based only on if you die or would like to sell/move. That can't be right in all situations, because you could end up with a massive debt on a property more than its value."
Answer: There are a lot of protections or regulations in place to protect anyone who takes out a reverse mortgage. One being, you can't owe MORE than your house is valued at during the time of repayment, a reverse mortgage is a non-recourse loan. In the instance that your house is less than you owe, you either sell the home and the proceeds are used to pay the loan and you keep the rest OR if you owe more than the house proceeds of the home go to the lender. Either way, you're not left paying for a "mortgage" without the house. In the case the parent, grandparent passes, then the heirs would have a choice of either paying back the reverse mortgage in payments, OR they can sell the house, heirs are protected during this as well to make sure they're not left with major debt in case of anything.
Is there a formula to figure out when the bank stops the monthly payments and then wants it back?
**Answer:**The amount becomes due if loan terms are not met, but the lender will discuss the options if it comes to that.
Is there a different formula for when the lump sum would have to be paid back?"
Answer: Each payout option has the same terms and the same pay back terms. As long as terms are met, the lender can't ask for early repayment.