Reverse Mortgage

AAA

DEFINITION of '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 .

VIDEO

Loading the player...

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. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Deed Of Release

    A legal document that removes a previous claim or lien on an ...
  4. Graduated Payment Mortgage

    A type of fixed-rate mortgage in which the payment increases ...
  5. Bi-weekly Mortgage

    A mortgage payment plan where payments are made every two weeks, ...
  6. Home Equity Conversion Mortgage ...

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

    Retirement Saving Tips For 65-Year-Olds And Over

    Find out how to save smarter after 65.
  2. Retirement

    Preparing To Tap Into Retirement Income

    You need to plan ahead to ensure a long and happy future away from the daily grind.
  3. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  4. Home & Auto

    The Benefits Of Mortgage Repayment

    Buying a home may be the biggest debt you'll ever incur. Learn why you should retire it sooner, rather than later.
  5. Home & Auto

    Reverse Mortgage Pitfalls

    Before tapping your home equity, find out what can go wrong.
  6. Home & Auto

    Is A Reverse Mortgage Right For You?

    Home equity can be a viable financing alternative, but it depends on how you spend the funds.
  7. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  8. Options & Futures

    The Reverse Mortgage: A Retirement Tool

    Discover another way to fund your retirement without having to make payments on a loan.
  9. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  10. Credit & Loans

    Understanding Home-Equity Loan Rates

    Shopping is the most important part of getting a home-equity loan. You're going to have to live with the terms for a long time.
RELATED FAQS
  1. Is it a good idea to add a reverse mortgage to your retirement strategy?

    A reverse mortgage can provide a good source of retirement income for homeowners who have little or no assets outside of ... Read Full Answer >>
  2. How can a reverse mortgage help wealthy and poor retirees?

    Reverse mortgages can help both wealthy and poor retirees, as they allow seniors to borrow against their home equity, receiving ... Read Full Answer >>
  3. What are the requirements to apply for a reverse mortgage loan?

    The requirements for applying for a reverse mortgage loan can vary depending on the type of loan sought, the age of the borrower ... Read Full Answer >>
  4. What are the different types of reverse mortgages?

    The three types of reverse mortgages are single-purpose reverse mortgages, federally insured reverse mortgages and proprietary ... Read Full Answer >>
  5. What alternatives are there to a reverse mortgage?

    While a reverse mortgage is a potential way to unlock the money tied up in your home, it is not the right answer for everyone. ... Read Full Answer >>
  6. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  3. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  4. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  5. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!