What is a reverse mortgage?
A reverse mortgage is a loan which is available to seniors who have paid off their houses or who have a significant amount of equity built up in their homes. They are paid back this equity money in the form of a large lump sum or in monthly payments. This money can be of substantial benefit to a fixed income senior who needs more income to cover expenses.
In a regular mortgage, the debt is taken on all at once, which decreases over time, while the equity increases. In a reverse mortgage, the debt starts at low or zero which increases over time, and the equity starts very high and decreases over time. This is done on the assumption that the mortgage holder will die before the equity is gone. When this happens, the house is either sold, the money of which goes to pay off the debt, or it can be refinanced as a regular mortgage by the heirs of the deceased homeowner.