A reverse mortgage is a type of loan designed for homeowners who are typically 62 years or older, allowing them to convert a portion of their home equity into cash without having to sell the home or make monthly mortgage payments. Instead of the homeowner paying the lender, the lender makes payments to the homeowner, providing either a lump sum, a line of credit, or regular payments based on the homeowner’s preference.
The loan is repaid when the borrower no longer lives in the home, whether due to selling the property, moving to a different residence, or passing away. At that point, the loan balance, including any interest and fees, must be paid off, usually through the sale of the home. If the home is sold for more than the loan amount, the excess goes to the homeowner or their heirs; if it’s sold for less, the lender typically absorbs the loss, as reverse mortgages are generally non-recourse loans.
Reverse mortgages can provide financial flexibility and security for older adults by tapping into their home equity to cover living expenses, medical costs, or other needs without the immediate burden of monthly payments. However, they reduce the homeowner's equity in the property over time and may affect the inheritance left to heirs.