Those who are 62 years or older, own and live in a home are eligible for a reverse mortgage. In a conventional mortgage, home owners pay a monthly mortgage payment that contains an amortized portion of the principal plus the interest. After each payment loan balance will be reduced by the amount of principal paid back. In other words with each payment the equity of the home increases by the loan amount paid back (without the interest). In a reverse mortgage, loan balance will be paid and the home owner can access the equity and receive that amount in a lump sum or as a monthly payment for a specified period of time. It is similar to a line of credit. In the meantime, interest will be accumulated on the amount withdrawn from the line of credit. The title will remain with the homeowner and if the property is sold mortgage balance will be required to be paid.
Reverse mortgage is not suitable for everyone. Before accepting a reverse mortgage, an applicant for a FHA guaranteed reverse mortgage must attend an approved counseling course. There are maximum lending limits based on the location. The homeowner still needs to pay property taxes and carry insurance.