A reverse mortgage is a special type of loan for homeowners aged 62 and older. Instead of you paying the bank, the bank pays you — using the equity in your home as collateral. You keep living in your house, and you do not have to make any monthly payments.
Here is the math: if your home is worth $400,000 and you owe $100,000, you have $300,000 in equity. A reverse mortgage lets you tap into that equity as a lump sum, monthly payments, or a line of credit.
The loan is repaid when the homeowner sells the house, moves out permanently, or passes away. The biggest risk? If you live long enough, you could use up all your equity and still owe money. The most common type in the US is the FHA-insured Home Equity Conversion Mortgage (HECM).