A reverse mortgage is a type of loan available primarily to older homeowners (usually age 55 or 62 and older) that allows them to borrow money against the equity they have built up in their home without having to sell it or make monthly mortgage payments
. Instead of the homeowner paying the lender, the lender pays the homeowner, either as a lump sum, monthly payments, a line of credit, or a combination
. Key features of a reverse mortgage include:
- The homeowner retains the title and ownership of the home
- No monthly mortgage payments are required; the loan balance increases over time as interest and fees are added
- The loan is repaid only when the homeowner sells the home, permanently moves out, or passes away
- The homeowner must continue to pay property taxes, insurance, and maintain the home to avoid foreclosure
- The amount available depends on the homeowner's age, the home's value, and current interest rates
- The loan balance can grow to exceed the home's value, but repayment is generally limited to the home's value at the time of sale or loan repayment, protecting the borrower or heirs from owing more than the home is worth
Reverse mortgages are often used to supplement retirement income by converting home equity into tax-free cash without monthly payments, but they come with costs such as origination fees, closing costs, and interest that accumulates over time
. In summary, a reverse mortgage is a loan secured by a home that provides older homeowners with income by tapping into their home equity, with repayment deferred until the home is sold or the borrower no longer lives there
