What type of loan arrangement involves regular payments from the lender to the borrower?

A reverse mortgage is a unique type of loan arrangement where the lender makes regular payments to the borrower, typically homeowners who are elderly and have a significant amount of equity in their homes. This arrangement allows the borrower to access the equity in their home without needing to sell it, providing them with capital to use for various expenses, such as healthcare or living costs, while still living in the home.

The key feature that distinguishes a reverse mortgage from other types of loans is that instead of the borrower making payments to the lender, the lender pays the borrower in installments. This creates a cash flow to the homeowner while deferring repayment until the homeowner moves out of the home, sells it, or passes away. The loan amount, interest, and any fees accrued are eventually paid back from the sale of the home, often leaving the homeowner with their equity as well, depending on the arrangement and housing market conditions.

Understanding reverse mortgages is essential for financial planning, especially for older adults considering their retirement strategies and how to effectively utilize their home equity.