In a traditional mortgage, a lender offers you a loan in order for you to obtain your house and you, in turn, agree to pay that loan down in manageable monthly increments. Since the lender is putting himself as risk by allowing you to borrow such a large sum of money, interest is added on to every month's payment. When you pay your mortgage for the month, you are paying down on your mortgage loan and essentially becoming a step closer to owning your home.
In a reverse mortgage, you already own your home but are older, retired, and would like extra funds each month. When you enter a reverse mortgage, your lender will send you monthly checks. These funds are being taken out of the equity of the house, so the amount of you owe will grow over time. Interest will also be charged to the total balance of your loan. Additionally, most reverse mortgages have variable rates instead of fixed, which means the rate of interest you will be charged will change depending on market conditions. As with any mortgage, a reverse mortgage is a major financial agreement that should not be entered into without careful examination of all contracts and financial documents by an attorney.
