What is a reverse mortgage?

A reverse mortgage is an arrangement specifically designed for homeowners, often elderly, that allows them to convert part of their home equity into cash without having to sell their home or make monthly mortgage payments. In this financial product, the lender provides funds to the homeowner based on the equity they have built up in their property. This payment can be made as a lump sum, monthly payments, or as a line of credit.

What makes this option significant is that it enables homeowners to access funds for daily expenses, medical bills, or other financial needs while remaining in their homes. The loan is repaid when the homeowner sells the house, moves out, or passes away. At that point, the proceeds from the home's sale are used to settle the reverse mortgage balance, with any remaining equity going to the homeowner or their heirs.

The other options don't accurately capture the essence of a reverse mortgage. For instance, a loan for purchasing a new home does not relate to accessing existing equity, while a standard mortgage involves the homeowner making payments to the lender, which contrasts with the structure of a reverse mortgage. Lastly, describing a reverse mortgage as a form of insurance for home equity loans misrepresents its purpose, as it is intended to provide funds rather than to insure existing