Definition
Reverse mortgages let seniors 62+ borrow against home equity without monthly payments. Funds come as lump sum, line of credit, or monthly payments. Interest accrues, and debt is repaid when the home is sold or the homeowner passes. Upfront costs are significant.
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Find my pathAbout this term
Reverse mortgages enable seniors to access home equity while remaining in their homes. Borrowers receive funds as a lump sum, line of credit, or monthly payments. Interest accrues on the borrowed amount, and the total debt grows over time. The HECM (Home Equity Conversion Mortgage), backed by FHA, is the most common type. Reverse mortgages require mandatory counseling and have significant upfront costs. They're best suited for borrowers planning to stay in the home long-term and without significant other liquid assets.
Pro Tip
Reverse mortgages have high upfront costs and accruing interest; compare the total cost of borrowing versus selling or using a HELOC.
Example
A 72-year-old homeowner with a paid-off $500,000 home takes a reverse mortgage, receiving $200,000 in monthly payments. The home is repaid through a lien when she sells or passes away.