What is a reverse mortgage?

A reverse mortgage is a financial product specifically designed for homeowners, typically seniors, that allows them to convert a portion of their home equity into cash. This type of loan provides monthly payments to the homeowner based on the value of their home. It essentially allows the homeowners to access the equity they have built up in their property without the need to sell it or make regular payments as they would with a traditional mortgage.

As the homeowner receives monthly payments, the amount owed on the reverse mortgage increases over time, as interest accumulates on the loan balance. The loan is typically repaid when the homeowner sells the home, moves out, or passes away.

This option is advantageous for retirees or those on a fixed income who may need additional funds for living expenses or other needs while remaining in their home. The nature of reverse mortgages is such that they do not require monthly payments back to the lender, differentiating them from traditional loans, which is crucial in understanding their unique function in providing financial support to eligible homeowners.