Reverse Mortgage
IntermediateA reverse mortgage is a loan available to older homeowners that lets them borrow against the value of their home without making regular repayments, with the loan and interest repaid when they die, sell or move out permanently.
Reverse mortgages allow retirees with valuable homes but limited income to turn some of their home equity into cash, while continuing to live in the property.
Instead of the debt falling over time, as with a normal mortgage, it grows, because interest is added to the balance. The loan is usually repaid from the sale of the home.
In the United States, the most common type is the Home Equity Conversion Mortgage, insured by the Federal Housing Administration and available to homeowners aged 62 or older. Borrowers can receive a lump sum, regular payments or a line of credit. Borrowers must keep paying property taxes, insurance and maintenance. In the United Kingdom, similar products are called lifetime mortgages, a form of equity release.
For example, a 70-year-old homeowner with a home worth 400,000 and no mortgage might take a reverse mortgage to receive regular payments to supplement their pension.
Reverse mortgages can be expensive, reduce the inheritance left to heirs and affect eligibility for means-tested benefits. Independent advice is strongly recommended.
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