An overview of reverse mortgages

A reverse mortgage is a financial product that allows homeowners aged 62 and over to access a portion of their home equity. Instead of making monthly payments to the lender, the borrower receives payments from the lender. Understanding reverse mortgages is important for homeowners who are looking for ways to supplement their retirement income. In this blog post, we will discuss how reverse mortgages work, their advantages and disadvantages, and alternatives to consider.

How Reverse Mortgages Work:

To be eligible for a reverse mortgage, the homeowner must be at least 62 years old, have significant equity in their home, and live in the home as their primary residence. There are two types of reverse mortgages: Home Equity Conversion Mortgage (HECM) and proprietary reverse mortgages. The amount of the loan depends on the value of the home, the age of the borrower, and current interest rates. Repayment options include paying off the loan balance or selling the home.

Advantages of Reverse Mortgages

Reverse mortgages offer several advantages for homeowners. They provide a supplemental source of income for retirees, without the need for monthly mortgage payments. Borrowers have flexibility in how they use the loan funds, whether it's for home improvements, medical bills, or travel. Additionally, borrowers can continue to live in their home and retain ownership.

Important considerations

Reverse mortgages have several important considerations to keep in mind. There can be high fees and closing costs which can make the loan expensive. Interest accrues over time, and the loan balance can grow larger than the value of the home. This can impact the inheritance left to heirs. Additionally, the loan amount may be limited, depending on the value of the home and the age of the borrower.

Reverse Mortgages vs. Traditional Mortgages

The main difference between reverse mortgages and traditional mortgages is the payment structure. With a traditional mortgage, the borrower makes monthly payments to the lender. With a reverse mortgage, the borrower receives payments from the lender. Eligibility requirements for a reverse mortgage are based on age and home equity, whereas traditional mortgages consider income and credit score. A reverse mortgage can impact the borrower's equity and inheritance, whereas a traditional mortgage builds equity.

Alternatives to Reverse Mortgages

Homeowners have several alternatives to reverse mortgages. They can consider refinancing their traditional mortgage to lower monthly payments or take out a home equity loan or line of credit. Downsizing or selling the home is also an option. These alternatives may provide similar benefits to a reverse mortgage without the disadvantages.


Reverse mortgages are a complex financial product that can provide benefits and drawbacks for homeowners. Understanding the advantages, disadvantages, and alternatives can help homeowners make an informed decision. Homeowners should consider consulting with a financial advisor to determine if a reverse mortgage is the right choice for them.