What Exactly Is a Reverse Mortgage? (A Simple Start)

Let’s begin with the basics. A reverse mortgage is a special type of home loan just for older homeowners. It lets you convert a portion of your home’s equity—the part of your home you actually own—into cash.

Think about the mortgage you likely used to buy your home. That’s sometimes called a “forward” mortgage. With that loan, you borrowed a large sum of money from a bank and made monthly payments to pay it back over many years. As you paid it down, your ownership (your equity) in the home grew.

A reverse mortgage does the opposite. You use the equity you’ve already built up to receive money from a lender. Instead of you paying the bank each month, the bank can pay you. As a result, your loan balance grows over time while your home equity decreases.

The most common type of reverse mortgage in the United States is the Home Equity Conversion Mortgage, or HECM for short. These are insured by the Federal Housing Administration (FHA), which is part of the U.S. government. This insurance provides important protections for both you and the lender, which we’ll discuss later on.

The key takeaway is this: a reverse mortgage allows you to access your home’s value without having to sell your house or take on a monthly loan payment. You continue to own and live in your home, but you are responsible for keeping up with property taxes, homeowners insurance, and general maintenance.