A reverse mortgage is a relatively new concept in mortgage loans that require no repayment of the loan as long as the home is owner occupied and other stipulations are met. Previous generations did not have this option. It allows a property owner who once had a steady income and used that income to invest in a residence or investment property to get from that property a steady rate of outflow. Basically they provide for a retiree another source of retirement income. This mortgage is federally insured by “Home Equity Conversion Mortgage” program or by “Fannie Mae’s HomeKeeper”, and allows a property owner to get cash from his built-up equity for personal reasons, either lump sum or in monthly payouts.

As you can imagine, the mortgage balance continues to grow in a reverse manner, becoming ever larger as one receives funds from it and pays nothing into it. (The normal “forward mortgage” reduces the principle amount over time.). Eventually, the mortgage equity will have been exhausted or the surviving mortgagee will pass on and then at that time final settling will be made on the property to whomever the residue has been willed, providing there is any residual value still in the property.

Reverse mortgages are what is known in the industry as “nonrecourse loans”. This means that the mortgagor took the loan with the security of the property alone, and in attempting to recapture his investment he has no recourse for recapture beyond it.

This type of mortgage has some fees peculiar to it – they are generally not found in the normal type loan. These are basically administration and servicing fees and would include: “equity sharing fees”, and “maturity fees”.

In approaching these type loans, be sure to retain some legal help in scrutinizing the mortgagor’s disclosures under the Federal Truth-in-Lending Act. They will be required to project the limits beyond which this property will be unlikely to produce further income for the owner.

Remember, not all reverse loans are equal. As with any mortgage, there are always better deals, better companies, and better programs and then those not so good – but this is especially true with reverse mortgages.. So investigate, take your time and choose wisely.

For more information you might go to AARP (American Association of Retired Persons) or to the U.S. Department of Housing and Urban Development.