Reverse Mortgage
Definition
- An arrangement, often used as part of a retirement plan, in which a homeowner can borrow on the equity held in his or her home causing a negative amortization. Homeowners over the age of 60 can borrow up to 40% of the value of their home and receive monthly tax-free payments from a lender. Also called a lifetime mortgage, reverse-annuity mortgage or home equity conversion mortgage.
- A type of loan that allows elderly homeowners to convert built-up equity into cash. The loan comes due if the homeowner sells, moves, or passes away.
Synonyms
equity release, home equity conversion mortgage, lifetime mortgage, reverse-annuity mortgage
Alternate Spellings
CHIP, Home Income
Related Terms and Acronyms
- Active Participant — Definition,
- Actively enrolled in an employer's retirement plan.
- Amortization — Definition,
- Amortization refers to the process of gradually paying down the principal of a loan. Each payment toward the principal reduces your loan by that amount. This is different than an interest-only loan payment where the principal balance is never reduced. Amortization for a mortgage loan in Canada is normally 25 years, but can be as few as 5 years.
- Annuitant — Definition,
- An individual who owns or is the recipient of an annuity.
- Annuitization — Definition,
- The process of turning a retirement plan or annuity into income in the form of periodic payments or a single lump sum.
- Annuitization Options — Definition,
- The different income dispersal options available when annuitizing a retirement plan or annuity, such as the timeframe and list of beneficiaries.
- Annuity — Definition,
- A regular periodic payment made by an insurance company to a policyholder for a specified period of time.
- A financial instrument that disperses a number of payments over a set period of time.
- Due-on-sale Clause — Definition,
- A condition of a mortgage that states that the loan must be paid when the house is sold. Commonly used in reverse mortgage lending.
- Empty Nesters — Definition,
- Men or women whose children have grown up and moved out and who might be in the market for a smaller house.
- Mortgage (mtg) — Abbreviation, Important,
- A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
- Negative Amortization — Definition,
- A gradual increase in loan debt that occurs when the monthly payment does not cover the entire principal and interest due. The shortfall is added to the remaining balance which creates "negative" amortization.
- Passive Income — Definition,
- Income coming in on a regular basis, with little or no maintenance.
- Total Annual Loan Cost (TALC) — Acronym,
- A method of finding the annual cost of a reverse loan.
