A reverse mortgage is a type of home loan that allows homeowners to borrow money using their home as security for the loan. It is called a "reverse" mortgage because, instead of making payments to the lender, the borrower receives money from the lender. Reverse mortgages are typically reserved for borrowers who are 62 and older. The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is backed by the federal government.

Here are some key features of a reverse mortgage:

• Loan Repayment: Unlike a traditional mortgage, with a reverse mortgage, borrowers don’t make monthly mortgage payments. The loan is repaid when the borrower no longer lives in the home. Interest and fees are added to the loan balance each month, causing the balance to grow. The homeowners or their heirs will eventually have to pay back the loan, usually by selling the home.

• Eligibility: To be eligible for a reverse mortgage, homeowners must be 62 or older and have considerable home equity. Homeowners are required to pay property taxes and homeowners insurance, use the property as their principal residence, and keep their house in good condition.

• Types of Reverse Mortgages: Borrowers can receive funds from a reverse mortgage as a lump sum, fixed monthly payment, or line of credit.

• Loan Limits: Federal regulations require lenders to structure the transaction so that the loan amount wont exceed the home’s value. Even if it does, through a drop in the home’s market value or if the borrower lives longer than expected, the borrower or borrower’s estate won’t be held responsible for paying the lender the difference thanks to the programs mortgage insurance.

Reverse mortgages can be a great financial decision for some seniors but a poor financial decision for others. It is important to understand how reverse mortgages work and what they mean for you and your family before borrowing.