Reverse Mortgage

Loading the player...

What is a 'Reverse Mortgage'

A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.

Often, the lender will require that there can be no other liens against the home. Any existing liens must be paid off with the proceeds of the reverse mortgage .

BREAKING DOWN 'Reverse Mortgage'

A reverse mortgage provides income that people can tap into for their retirement. The advantage of a reverse mortgage is that the borrower's credit is not relevant, and is often unchecked, because the borrower does not need to make any payments. Because the home serves as collateral, it must be sold in order to repay the mortgage when the borrower dies (in some cases, the heirs have the option of repaying the mortgage without selling the home ). These types of mortgages have large origination costs relative to other types of mortgages. These costs become part of the initial loan balance and accrue interest. Senior citizen borrowers with good credit should carefully analyze the options of a more traditional mortgage, such as a home equity loan, against a reverse mortgage.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Home Mortgage

    A loan given by a bank, mortgage company or other financial institution ...
  3. Mortgage Accelerator

    A type of mortgage loan program popular in the United Kingdom ...
  4. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
  5. Reverse Mortgage Financial Assessment

    A review of the borrower’s credit history, employment history, ...
  6. Home Equity Conversion Mortgage ...

    A type of Federal Housing Administration (FHA) insured reverse ...
Related Articles
  1. Financial Advisor

    Reverse Mortgages: Right for Clients? Not Often

    Reverse mortgages are a legitimate vehicle for folks age 62 and up to tap into the equity in their homes for other uses. Here's what to consider with them.
  2. Retirement

    Additional Streams of Income for Seniors

    Find out how a reverse mortgage can work in your favor during retirement.
  3. Retirement

    5 Signs a Reverse Mortgage Is a Bad Idea

    Here are the key situations when you should probably pass on this type of home loan.
  4. Retirement

    Reverse Mortgages: How They Can Cushion Retirement

    Reverse mortgages can add some wiggle room to your retirement budget. Here's the lowdown on how to use them — and how not to.
  5. Retirement

    The Dangers Of A Reverse Mortgage

    In many circumstances, a reverse mortgage can be a risk to your financial security. Here are six dangers you should consider before signing on the bottom line.
  6. Personal Finance

    Top 6 Mortgage Mistakes

    These common errors could end in foreclosure.
  7. Retirement

    How Does A Reverse Mortgage Work?

    A homeowner who’s at least 62 years old can use a reverse mortgage to tap into her home’s equity for money. The house serves as the loan’s collateral. The loan is repaid when the homeowner dies, ...
  8. Retirement

    Is A Reverse Mortgage Right For You?

    Home equity can be a viable financing alternative, but it depends on how you spend the funds.
  9. Retirement

    Guidelines for FHA Reverse Mortgages

    FHA guidelines protect borrowers from major mistakes, prevent lenders from taking advantage of borrowers and encourage lenders to offer reverse mortgages.
  10. Personal Finance

    Reverse Mortgages: Why They're Really Too Good To Be True

    Americans are increasingly turning home equity to cash - but this transaction is not as simple as it sounds.
RELATED FAQS
  1. What are the requirements to apply for a reverse mortgage loan?

    For homeowners of a certain age who wish to stay in their homes but are finding it costly, a reverse mortgage could be the ... Read Answer >>
  2. Is it a good idea to add a reverse mortgage to your retirement strategy?

    A reverse mortgage can be a great way to increase retirement income. Does it work for everyone? What happens after a homeowner ... Read Answer >>
  3. What is the process to take over a mortgage through a loan assumption?

    My landlord wants me to take over her mortgage.  ... Read Answer >>
  4. What are the different types of subprime mortgages?

    Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >>
  5. What’s the difference between a mortgage lender and a mortgage servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  6. How can a reverse mortgage help wealthy and poor retirees?

    Learn about the ways a reverse mortgage can help both wealthy and poor retirees by allowing them to borrow against their ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center