A reverse mortgage is exactly what it sounds like, it’s a lot like a regular mortgage except the bank pays you. Okay, it’s a little more complicated than that, but that’s the jist. What actually happens it the bank gives you a loan and you don’t have to repay the bank until you die, sell your house, or stop living there are your primary residence. There are other conditions most banks require and that is that you must live in your home (part of the first group of conditions) and that you’re over 62. Some other bonuses of reverse mortgages are that the proceeds are generally tax-free and there are often no income restrictions on who is eligible. They mostly allow house-rich but cash poor individuals to extract some equity from their home so that they can live on it in retirement (hence the 62 age restriction).
There are three types of reverse mortgages: single purpose reverse mortgage, federally-insured reverse mortgage, and there are proprietary reverse mortgages. We’ll discuss the three different types in the next few days.