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Understanding a Reverse Mortgage

Many people have heard of the term “reverse mortgage” but may not actually know what that means. A reverse mortgage is meant specifically for homeowners that are 62 years or older with considerable home equity that they can borrow against the value of their home. With a reverse mortgage, qualified homeowners can receive a lump sum of funds, a line of credit, a fixed monthly payment, or even a combination of these options. The difference between a forward mortgage (the type that was used to initially buy the home) and a reverse mortgage is the fact that the reverse mortgage does not require the homebuyer to make loan payments of any kind.

How Does This Type of Mortgage Work?

These are a valuable type of mortgage because they help seniors get cash that they need. This is specifically meant for seniors that have a majority of their net worth primarily tied up in the value of their house. However, it is important to understand how this loan works because they can be complex to understand and are often subject to scams.

The reason this loan is called a reverse mortgage is because instead of the homeowner making payments towards the lender, instead, the lender makes payments towards the homeowner. The homeowner has the power of choice when deciding how to receive their money. The homeowner is only responsible for the interest on the amount of money received from the lender. A great benefit of this interest is the fact that the interest gets rolled into the loan balance, so the homeowner does not have to initially pay anything. It is also important to note that the homeowner will still get to keep the title of the home. The type of proceeds from the reverse mortgage are not taxable either.

Different Types of Reverse Mortgages

There are three types of reverse mortgages that you may encounter. However, the most common type of reverse mortgage is the home equity conversion mortgage which is also know as the HECM. The HECM nearly represents all of the reverse mortgages that lenders offer because it is meant for homes that are $765,000 or below. If the value of your home is over $765,000 then you will need to look into a different type of reverse mortgage. When you take out an HECM there are six different ways that you can receive your money. You can get it in a lump sum, equal monthly payments, term payments, a line of credit, equal monthly payments plus a line of credit, and term payments plus a line of credit. Each way of receiving proceeds has its own benefits and it is important to look at what would be best for your current financial situation.


Reverse mortgages can be a bit tricky. However, they are easy to navigate if you have the right information. Make sure to talk to your lender to see what the options are as well as what would be best for your specific financial situation. If you are qualified for this type of mortgage it can get you money in your pocket just from owning a home!