Which type of mortgage involves borrowing against equity in a current property?

The type of mortgage that involves borrowing against the equity in a current property is a reverse mortgage. This type of loan allows homeowners, typically seniors, to convert part of their home equity into cash without the requirement to make monthly mortgage payments. Instead, the loan is repaid when the homeowner sells the home, moves out, or passes away.

Reverse mortgages are designed primarily for individuals who are 62 years or older and provides them with a means to supplement their retirement income. The borrower remains the owner of the home and continues to live there while accessing the equity built up over the years.

In contrast, the other choices pertain to different scenarios or financial strategies that do not specifically focus on leveraging existing home equity in the same manner as a reverse mortgage does. For example, a second mortgage is a loan taken out using the existing home as collateral but typically requires monthly payments. A construction loan is specifically for financing the construction of a property rather than tapping into home equity. A balloon mortgage features lower initial payments followed by a larger final "balloon" payment, which does not relate directly to equity borrowing.