In today’s world, we’re being bombarded with ads promoting reverse mortgages. However, few people understand how reverse mortgages work. This is my understanding:

With a reverse mortgage, a homeowner takes out a loan based on the equity and market value of the home. Any current mortgage is paid off with the proceeds, and the bank makes either a lump sum or monthly payments to the home-owner with the remaining funds. Alternatively, the homeowner can set up a line of credit with the proceeds of the reverse mortgage to draw on when necessary. The homeowners retain the title to their home and remain responsible for paying real estate taxes and homeowner’s insurance. The homeowner is required to have mortgage insurance for the reverse mortgage loan.

To qualify for a reverse mortgage, the homeowner must continue to live in the residence as their main home. The interest rate on the loan is variable and the reverse mortgage doesn’t have to be repaid as long as the homeowner stays in the home.