What is a reverse mortgage?

A reverse mortgage is a financial product specifically designed for homeowners, typically elderly individuals, that allows them to convert a portion of their home equity into cash. This can be particularly beneficial for those who may have limited income but possess substantial equity in their homes. With a reverse mortgage, borrowers do not have to make monthly payments to the lender; instead, the loan amount, along with interest, is repaid when the homeowner sells the home, moves out, or passes away. This option provides financial flexibility, as it enables homeowners to access funds while continuing to live in their homes.

In contrast, other options describe different types of loans or financial products that do not focus on accessing home equity in the same way a reverse mortgage does. For instance, a loan for purchasing a second home involves acquiring an additional property instead of leveraging equity from an existing one. A standard mortgage is characterized by fixed repayment terms and requires regular monthly payments towards the principal and interest. Short-term loans for renovations pertain to temporary financing intended specifically for home improvements, which does not align with the purpose of a reverse mortgage as a long-term financial strategy for tapping into home equity.