How do Reverse Mortgage loans work?

How do Reverse Mortgage loans work?

That depends on the type of reverse mortgage the borrower chooses. There are three options: a line of credit, a monthly payment or a lump sum.

With a line of credit, the bank provides the borrower with access to a set amount of money, but the borrower owes interest only on the amount that's used. This is the type of loan the Fletchers chose. It allows them to handle one-time costs, such as Maggie's car or vacations, and have money available for other needs which may arise.

The second option is what the loans were designed for -- to provide monthly income to seniors to help them make ends meet. With this option, the bank pays borrowers a set monthly amount for life.

The lump-sum option is most like a traditional mortgage. The borrower gets the full amount of the loan in a single payment. But the borrower makes no monthly payments. Instead, the interest that accrues is added to the loan balance. The principal and interest are paid only when the homeowner sells the home or dies.

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