Many homeowners have heard of a forward mortgage, but what about a reverse mortgage? To understand a reverse mortgage, let’s take a look at both types of mortgages:
In a forward mortgage the money provided from the lender to the borrower is used to purchase a home. Throughout the duration of the loan, the borrower makes monthly payments to the lender. In this situation, the borrower’s debt is decreasing while the equity in the home is increasing.
Also, in a traditional mortgage the buyer is expected to make a down payment and show credit history before being approved for a mortgage.
A reverse mortgage is the exact opposite of a forward mortgage. The homeowner actually receives monthly payments by converting equity from the home into cash. So in this case, debt increases while equity decreases. A down payment is not required, however other fees are associated with a reverse mortgage but these fees are typically built into the loan to avoid out-of-pocket costs.