What is a reverse mortgage?

A reverse mortgage is specifically designed to enable homeowners, typically those who are older and have significant equity in their homes, to convert a portion of that equity into cash without the need to sell their property. This unique financial product allows them to receive funds, which can be used for various purposes such as supplementing retirement income, covering healthcare costs, or any other expenses, while still living in their home.

The key advantage of a reverse mortgage is that the homeowner does not have to make monthly mortgage payments on the borrowed amount, which can alleviate financial pressure. Instead, the loan is repaid when the homeowner sells the home, moves out, or passes away, at which point the loan balance is typically deducted from the home's sale proceeds.

Other choices do not encapsulate the essence of a reverse mortgage. For instance, the option about paying off an existing mortgage describes a traditional mortgage refinance scenario, while the description of a traditional loan with monthly repayments does not align with how a reverse mortgage operates. Furthermore, a loan that requires monthly payments throughout its term contradicts the very nature of a reverse mortgage, where payments are deferred until the end of the loan term.