A reverse mortgage loan is a home loan that provides cash payments to a person based on home equity. This loan does not need to paid until the owners sell the house, move out or die. This money is not an income so it is not taxable and does not affect any other income that you have.
A person must be at least 62 years old to take part in this. This information is only for a reverse mortgage in the United States. This was designed to help out many older people who own a house but are having cash problems. I saw on a video where a woman owned a home and a car but did not have much income, so she was going to lose the house and the car. She tried many ways to get help but this was the only thing that worked for her.
Of course whenever you are dealing with banks, you have to be careful since they want to make as much money as possible. So sometimes that may mean trying to do something that is not in your best interest. For example they may suggest that the older spouse only get this loan. This is a bad idea since when they die, the younger spouse will need to pay for the loan immediately or have the house foreclosed on.
They do have counseling for this at no cost or at a very low cost. The technical name for a reverse mortgage is a Home Equity Conversion Mortgage (HECM). They are insured by the United States federal government. More specifically they are insured by the FHA (Federal Housing Administration) that is part of the U.S. Department of Housing and Urban Development or HUD for short.
The reverse mortgage is becoming more and more popular with seniors being the fastest growing segment of the population. Every single day 10,000 Americans turn 65 years old. In 2003 there were 18,000 reverse mortgages in the United States. In 2007, there were 107,000 of them.
People have different choices on how to get this money from the loan. Clients can take the money in one lump-sum with a fixed interest rate. They can also take it as a line of credit with a variable interest rate.
The bank may suggest that you take the former one. But the latter one is better for you. With the former one, the interest charges are added each month and can end up being more money than the original amount borrowed.
To learn more about a reverse mortgage loan see How A Reverse Mortgage Works.