In a normal mortgage you make a monthly payment on equity (a loan) someone has given you. In a reverse mortgage you get a monthly payment from someone who will get equity from your home when you sell it at some time in the future. As part of the economic recovery plan the feds created the Home Equity Conversion Mortgage. This enable seniors over age 62 to downsize by selling their home, buying a new one, and obtain a reverse mortgage, potentially all in the same financial transaction. There are a number of restrictions, shown in the link above. To give you an idea of how this works, let's imagine a couple 75 years of age, who own a primary residence currently valued at $500,000 here in the desert. The home is too large, and they can find an acceptable home at $300,000. In round numbers, they will gain $200,000 on the sale and they can reverse mortgage the $300,000 equity in their new home that will pay them roughly $1200/month as long as they live in the home. If they move out they must sell the home to provide the lender his equity. Since they wouldn't have a capital gain, they could put the $200,000 (less costs of the sale and the reverse mortgage) into an annuity for additional income. If they had bought the old home some time ago, say at $100,000, they can transfer the tax base of it to the new home, so their property tax can stay the same. There are a lot of fine details, but that's the gist of it. |