With a reverse mortgage, homeowners borrow part of the equity they have in their property. The principal and accrued interest are repaid only after they die or move out. Over time the owner's equity diminishes while the amount of the loan increases-the opposite of a traditional mortgage. Unless you fall behind on taxes or allow the house to slip into disrepair, the lender can't foreclose on the property, even if you live many years beyond expectations and the size of the debt surpasses the value of the house itself. In most cases, the proceeds of a reverse mortgage can be taken in a lump sum, an open line of credit, or as monthly payments.
Though reverse mortgages have been available for more than 25 years, they've become more widespread recently. In fiscal 2007, the Department of Housing and Urban Development insured upward of 100,000 reverse mortgages, compared with less than 7,000 in 2000. HUD, through its many authorized lenders, is by far the largest reverse-mortgage provider, with almost 90 percent of the market.
Moreover, as average life expectancy continues to rise, older folks need more money than before to get through their retirement years. They may be less concerned about passing on large sums to their children, who are often middle-aged and financially settled by the time of their parents' deaths.
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