While fewer people have been taking out regular mortgages in recent months, it has been reported in the media that reverse mortgage lending is increasingly common. A reverse mortgage is a type of loan, usually held by people who are retired seniors, which transforms some of the home’s equity into revenue for the homeowner. The opposite of typical mortgages most people are familiar with, a reverse mortgage provides one or more payments to the homeowner. A reverse mortgage doesn’t need to be repaid until the owner either dies or stops living there. This enables retired homeowners to afford paying their expenses without leaving their homes. Read on for more facts regarding the characteristics of a reverse mortgage…

According to the Federal Trade Commission, there are three different types of reverse mortgages available; single-purpose, federally-insured, and proprietary. The single-purpose type can only be used to pay for a particular expense, and are only available to people with relatively low income. The federally-insured and proprietary mortgages don’t require many qualifications (except for being at least 62 years old), but need a larger repayment. The federally insured (a.k.a. HECM) reverse mortgages allow the homeowner to reside in a medical facility for as long as twelve months before it has to be repaid. The Department of Housing and Urban Development web site states that the amount of money provided by this type of mortgage is affected by the home’s value, the owner’s age, and interest rates.

The AARP web site indicates that the funds made available by a reverse mortgage can be provided in a few different ways, including either a single large payment, monthly payments, or a credit account which allows money to be withdrawn when desired. In addition to the mortgage having to be repaid if the owner dies, there are multiple situations in which the owner might stop living in the house, also requiring it to be repaid; he or she might move into a retirement home, start living with a family member, or resell the house. If the homeowner dies or moves to a retirement home, his or her family can repay the reverse mortgage by selling the house, or by using other income for repayment if they desire to keep the home.

Overall, a reverse mortgage is somewhat like slowly selling the house over a long period of time while still living in it. This causes it to be more difficult for the homeowner’s family to keep the house, but also makes it possible to continue living there during retirement, with otherwise insufficient income.