A reverse mortgage is a loan that allows homeowners, typically seniors, to convert a portion of their home equity into cash while still living in the property. Unlike a traditional mortgage where homeowners make monthly payments to the lender, with a reverse mortgage, the lender pays the homeowner in the form of periodic payments or a lump sum.

Reverse mortgages work by allowing homeowners to borrow against the equity in their homes. The loan amount is based on factors such as the borrower’s age, the value of the home, and the interest rate. The loan does not need to be repaid until the homeowner no longer lives in the property or fails to meet the obligations of the loan.

To protect seniors’ rights and interests, there are legal requirements for reverse mortgage lenders. These include mandatory counseling for borrowers, disclosure of all terms and costs associated with the loan, a cooling-off period after counseling, and the option for non-borrowing spouses to remain in the home even if the borrowing spouse passes away.

Before getting a reverse mortgage, seniors should carefully consider their financial situation and future needs. They should evaluate alternatives to a reverse mortgage, such as downsizing or relying on other sources of income. Seniors should also understand the costs associated with a reverse mortgage, including interest rates, closing costs, and servicing fees.

While reverse mortgages can provide financial benefits for seniors, there are potential risks to consider. These include accumulating interest over time, reducing the equity in the home, and the possibility of foreclosure if the borrower fails to meet the obligations of the loan. Seniors should carefully weigh the pros and cons before deciding on a reverse mortgage.