A reverse mortgage is a special type of home loan only for homeowners who are 62 and older.
A reverse mortgage loan allows homeowners to borrow money using their home as security for the loan, just like a traditional mortgage. Unlike a traditional mortgage, with a reverse mortgage, borrowers don’t make monthly mortgage payments. The loan is repaid when the borrowers no longer live in the home. Interest and fees are added to the loan balance each month and the balance grows. With a reverse mortgage homeowners are still required to pay property taxes and homeowner’s insurance, and keep their house in good condition.
With a reverse mortgage, the amount the homeowner owes to the lender goes up – not down – over time. This is because interest and fees are added to the loan balance each month. As your loan balance increases, your home equity decreases.
Warning: A reverse mortgage is not free money. It is a loan that homeowners or their heirs will have to pay back eventually, usually by selling the home.
Source: Consumer Financial Protection Bureau: www.consumerfinance.gov