Reverse mortgages are a home loans which provide cash payments based on home equity. With reverse mortgages, homeowners normally “defer payment of the loan until they die, sell, or move out of the home.” Specific rules for these types of transactions differ depending on the laws of jurisdiction in a defined location.
With a conventional mortgage, the homeowner generally makes a monthly payment to the lender. Following each payment, the homeowner’s equity rises by the amount of the principal that is included in the payment. With a reverse mortgage situation, the homeowner is not required to make monthly payments. If payments are not made, interest is added to the loan’s balance. While the rising loan balance may eventually grow to exceed the value of the home, the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home.
