Reversed Mortgage: A Common Misnomer

Maybe not the correct term, but still makes the point..

Reversed mortgage is often mistakenly used to refer to a reverse mortgage. Although the word “reversed” is not the proper name for this kind of mortgage, the sentiment is actually probably more accurate than the official name.

 Reversed Mortgage Quote

Payments are “Reversed”

If you stop to think about the way that a reverse mortgage actually works it would almost seem more appropriate to have named this type of loan a reversed mortgage. The payment stream is reversed from what it was when you first bought your home. When you originally took out your “forward” mortgage you were making payments to the lender. Your mortgage was considered a “rising equity, falling debt” loan. Over the course of many years of making payments to your mortgage lender, you have accumulated a large amount of home equity. You may even own your home free and clear by now.

In order for you to tap into your home equity without having to make monthly mortgage payments all over again, you may wish to get a reverse mortgage. If you do this, you will then enter into a mortgage contract that is considered a “rising debt, falling equity” loan. The mortgage payments will be reversed. Instead of you paying the lender, the lender will now pay you. This mortgage vehicle is an extremely effective financial planning tool that improves the quality of life for many senior homeowners. Presently there are few ways to safely access your built-up equity, without incurring monthly payments or selling your home. AARP says that most senior homeowners wish to remain in their own homes and continue living in the communities that they are accustomed to, for as long as possible.

So whether you call it reversed mortgage or reverse, this home equity loan is worth looking into. When you really think about it, using the term reversed mortgage might actually be a more descriptive label for this loan than its’ official name.