A reverse mortgage is a loan available to homeowners, 62 years or older (although some private-label reverse mortgages go down to age 55) that allows them to convert part of the equity in their homes into cash.
The product was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. There is no restriction how reverse mortgage proceeds can be used. In fact, an increasing number of homeowners are using reverse mortgages as part of a comprehensive retirement plan to enhance their financial security.
The loan is called a reverse mortgage because instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.
The borrower is not required to pay back the loan until the home is sold or otherwise vacated. As long as the borrower lives in the home, he or she is not required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, homeowners insurance and homeowners association dues (if applicable).