Reverse mortgages are loans available to people 62 years of age or older. These loans are used to release the home equity in the property as one lump sum or multiple payments.

The home owner's obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves the house and moves out somewhere else.

In a typical mortgage, the owner of the house makes a monthly payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term for instance if the term is of 30 years then the mortgage is paid in full and the property is released from the lender.

Whereas in reverse mortgages, the homeowner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, then the debt on the property increases each month.

However, tax experts generally advise that the Internal Revenue Service does not consider loan advances to be income, and interest charged is not deductible until it is actually paid, that is, at the end of the loan.

The loan ends when the owner of the property dies, sells the house, or, depending on the loan conditions, moves out of the house for 12 consecutive months. Moving into an assisted living home can trigger this.

At that point, the reverse mortgage can be paid off with the proceeds of the sale of the house, or be refinanced by the heirs of the debtor. If the proceeds exceed the loan amount, the owner gets the difference; however, if the owner dies, then the heirs receive the proceeds.

For cases where the proceeds are not sufficient to pay off the loan, then the bank or the insurance that the bank has on the loan absorbs the difference.