A traditional mortgage is a loan for a home that you pay off over time. A "reverse" mortgage works in the opposite way. Instead of making monthly payments, the bank pays you. Instead of paying the loan balance off over time, the balance of a reverse mortgage usually increases over time. Below is a comparison of a traditional mortgage and a reverse mortgage considering seven major features of a mortgage loan.

• AGE To be eligible for a traditional mortgage, you just need to be an adult capable of signing a legal contract. To be eligible for a reverse mortgage loan, the youngest homeowner must be at least 62 years old. Typically, the older you are when you apply for a reverse mortgage, the more money you are eligible to receive.
• CREDIT SCORE A traditional loan has a minimum credit score requirement, usually 620. With a reverse mortgage, credit score is not relevant. You can even have a recent bankruptcy filing. Credit history is not a factor on a reverse mortgage because you don't make any payments.
• INCOME A traditional loan requires sufficient income to be documented, enough to make the monthly mortgage payments. There are no monthly payments with a reverse mortgage. The reverse mortgage pays you income and therefore no income documentation is required.
• ASSETS The primary asset for a mortgage loan is your house. But for a traditional loan you might also be required to have cash in the bank on reserve. Not so with a reverse mortgage. A reverse mortgage provides you with cash and there are no asset requirements other than the property itself.
• EQUITY The equity in a home is that portion which you own without a loan balance. If the house is worth $100,000, and you have a mortgage of $50,000, you would have equity in the home of $50,000. For a traditional mortgage, the acceptable loan to value ratio varies greatly. There are traditional loans available in excess of 100% of the value of the home, although, mortgage lenders prefer that the homeowner have at least a 20% equity position. In the case of a reverse mortgage, you can apply even if you already have a mortgage. However, to be eligible, you need a lot of equity--enough to pay off the old mortgage, give you the cash you need, and meet the lender's guidelines. The amount of money you will be eligible for is based in part on your age and the amount of equity in the home.
• INTEREST RATES Traditional mortgages offer a variety of fixed interest rate products and adjustable interest rate products. A reverse mortgage is usually an adjustable rate mortgage. The formula used to determine the interest rate on a reverse mortgage can be quite sophisticated. The lender will consider factors such as your age, how long you might live, and the value of the house. Be sure to read the lender's disclosures on the interest rate very carefully.
• FEES Almost all mortgage have up front fees such as an appraisal, origination fee, and title and escrow costs. Whether or not up front fees make sense has a lot to do with how long you will use the loan. On both traditional mortgages and reverse mortgages, it does not make sense to pay a lot in up front fees unless you will be living in the property for many years.Most reverse mortgages are administered by HUD and the fees and terms are regulated. These loans are called Home Equity Conversion Mortgages, or HECMs.

Renee Morgan
Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.