What is reverse mortgage?

A senior citizen of age 60 or above can mortgage his house to a financial institution which gives a fixed sum of money to the citizen on monthly, quarterly or yearly basis.

Owners are exempt from repaying this amount, and they and their surviving spouses can stay in the home for their whole lifetime.

Six months after the death of the surviving spouse, the financial institution gives the legal heirs an opportunity to repay the loan with interest. Failing this, they can recover mortgaged property.

Any excess amount from this sale is returned to the legal heirs of the owner.



How it works

In simple terms, a reverse mortgage is a special type of loan against a home that allows the borrower to convert a portion of the equity in the property into cash. The equity, built up over many years of home loan payments, can be paid directly to the borrower. Unlike a traditional home equity loan, no repayment is required until the borrowers cease to the home as their principle residence. It is called a reverse mortgage because here the lender pays installments to the borrower.

In a traditional second mortgage, or a home equity line of credit, the homebuyer must show sufficient income versus debt ratio to qualify for the loan and make monthly mortgage payments. Reverse mortgage is available regardless of current income or assets. The amount that can be borrowed depends on the borrower’s age, the current interest rate, other loan fees and the appraised value of the property.

Like all homeowners, the borrower is still required to pay applicable real estate taxes and other conventional payments such as maintenance and utilities.

Payouts can be made to the borrower in a single lump sum, in monthly payouts or in the form of a line of credit that the borrower can draw from whenever he or she decides to. There are benefits to both approaches, depending on one’s immediate cash requirements and tax situation.


To choose between a retirement home and reverse mortgage is matter of individual preference. It is, in any case, only an option if there is a pre-existing property with no loans or other encumbrances to pledge.