Reverse Mortgage
A loan available to older homeowners that converts home equity into cash without requiring monthly payments during the borrower's tenure.
Reverse mortgages, most commonly Home Equity Conversion Mortgages (HECMs) insured by FHA, let homeowners aged 62 or older borrow against their home equity. The loan doesn't require monthly payments; instead the balance grows over time and is repaid when the home is sold, the borrower moves out, or the borrower passes away.
Funds can be distributed as a lump sum, monthly payments for a set term or for life, a line of credit, or some combination. Borrowers remain responsible for property taxes, homeowner's insurance, HOA dues if any, and maintaining the home, failure on these can trigger default.
Reverse mortgages have meaningful upfront and ongoing costs, and they reduce the equity heirs will inherit. They're a powerful tool for retirees with substantial home equity and limited cash flow, but the decision deserves careful analysis against alternatives like downsizing or a HELOC.
Related terms
Other terms you'll see alongside Reverse Mortgage
A revolving credit line secured by your home's equity, with a variable rate and draw period followed by repayment.
The portion of your home's value you own outright, calculated as current value minus what you owe on the mortgage.
A government-insured mortgage program designed to help buyers with lower credit scores or smaller down payments qualify.
The loan amount expressed as a percentage of the property's appraised value or purchase price (whichever is lower).
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