A reverse mortgage is very different from a traditional mortgage. Review this side by side comparison to see if a reverse mortgage is right for you.

Compare a Reverse Mortgage to a Traditional Mortgage

Following are some of the major differences between a traditional mortgage and a reverse mortgage.

Paying Off the Loan

Traditional Mortgage - A traditional mortgage usually has amortized payments. The principal balance is repaid a little each month until the entire balance has been satisfied, often in 30 years.

Reverse Mortgage - Paying off a reverse mortgage often does not happen in the borrower's lifetime. Once the home owner passes away, the reverse mortgage lender sells the house and uses the sale proceeds to repay the balance due. If there is money left after paying the reverse mortgage, that money goes to the heirs. If the sale proceeds are less than the balance due, the reverse mortgage lender must take the loss.

Monthly Cash Flow

Traditional Mortgage - A traditional mortgage is a drain on personal cash flow, often the largest expense each month. Monthly mortgage payments must be made in a timely manner for the life of the loan.

Reverse Mortgage - The purpose of a reverse mortgage is to significantly improve the senior's cash flow. The borrower can receive regular monthly equity payments either for life or for a specified period of time. If there is a traditional mortgage on the home, it might be possible to pay it off and end monthly mortgage payments.

Age of the Borrowers

Traditional Mortgage - Anyone old enough to legally sign a contract can apply for a traditional mortgage. However, most traditional mortgages require minimum credit scores. A credit history takes time to build, so it's hard to get a mortgage at eighteen. There is no maximum age restriction.

Reverse Mortgage - Reverse mortgages are for seniors only. The youngest borrower must be at least 62 years old. The older the borrowers, the more they qualify to borrow. Interest rates and property value also determine how much can be paid in a lump sum or in monthly distributions. Find out how to get the maximum reverse mortgage amount.

How to Qualify

Traditional Mortgage - Applicants must meet income, asset, and credit score guidelines.

Reverse Mortgage - Credit, income, and assets (reserves) are not considered (although the borrower cannot have an open bankruptcy). A great deal of home equity is required, however. The property type must meet the reverse mortgage lender's requirement. Often very unusual properties that are difficult to appraise will not be approved.

Renee Morgan

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