The way reverse mortgages on your home work is that as long as you're a homeowner and are 62 years of age or older, it allows you to get cash from your home equity without making monthly mortgage payments to the bank.
Instead of you as a borrower paying the bank, when you take out a reverse mortgage on your home, the lender or bank pays you instead.
The reverse mortgage loan is then paid back when you either pass away, sell the home or move.
If you die and have not paid back the loan for the reverse mortgage, then the bank takes the home and sells it to recover the payments.
Basically the bank is buying back the home from you through a reverse mortgage.
In the case of a regular mortgage, the bank pays for the cost of the home and you pay the bank back with interest and then eventually own the home, once the mortgage is paid off.
In the case of a reverse mortgage, the bank is paying you for the home through payments and if you pay back the reverse mortgage you can keep the home.
However if you don't pay back the reverse mortgage then the home eventually becomes the banks or lenders, when you pass away.
But if you sell the home and then use proceeds of the sale to pay the bank back then you don't lose the home to the bank.
Basically unlike a traditional mortgage, where you pay down the balance of the mortgage to the bank, a reverse mortgage works in reverse by increasing your loan over time.
When you take out a reverse mortgage on your home, you get the money based on home's equity, age and the current interest rates, which can be distributed as a lump sum or in monthly payments or through a line of credit.
And because you're not making any monthly payments on the reverse mortgage, the interest and fees are added to the loan balance each month and as your balance grows, your home equity also decreases.
However you're not forced to pay back the loan for the reverse mortgage as long as you live in the home.
But when you sell the home, move out or you die, the loan for the reverse mortgage becomes due and the home is often sold off to pay off the balance and you or your heirs keep any remaining equity.
If you want to leave the home to your children or heirs, it's best to avoid a reverse mortgage.
But if you have nobody to leave the home too, a reverse mortgage can be a good idea as the bank will take care of the house and sell it after you die.