Reverse mortgage loan (RM) is one of the products of housing equity conversion (HEC), and it is a kind of housing-based loan with the core of promoting many activities such as pension, insurance and real estate. Its target is the elderly who own houses. Without moving out of the house, the old people convert their house assets into cash through reverse mortgage loans, which can be used for house maintenance, daily life, long-term care or other expenses. All debts (including principal, interest and expenses) will be paid when the house is sold, the owner moves out permanently or the borrower dies, and the borrower can also choose to repay all the money voluntarily at any time.

Comparison between Reverse Mortgage Loan and Traditional Mortgage Loan

In a sense, reverse mortgage is equivalent to a "reversal" of traditional mortgage. Homeowners get loans from lenders every month instead of paying loans to banks to buy houses. The traditional mortgage loan is based on the income and credit of the lender, while the house as collateral is only an additional guarantee for repayment, and its total debt generally decreases with the passage of time, while the net assets of the house increase; The reverse mortgage loan is secured by the value of the house itself, and does not need income or credit guarantee (so it is also suitable for borrowers with low income and poor credit). Its total debt increases with time, while the net assets of the house decrease, which can only be repaid when the house is sold, the owner no longer lives or dies. Prior to this, the borrower owned the house. In addition, reverse mortgage is a kind of loan without recourse and can only be repaid with housing assets. If the house assets are insufficient to repay the debt, the borrower does not need to pay the difference between them, so the lender may face the risk that the debt cannot be fully repaid. The fundamental difference between reverse mortgage and traditional mortgage is that the latter must show proof of income, and housing is only a technical guarantee, while the former does not need proof of income and has no recourse, so it is not necessary to repay debts exceeding housing assets.

Reverse mortgage loans do not require proof of income and credit. Theoretically, it is relatively simple to design this kind of mortgage loan, but considering that the real estate price changes caused by future economic changes are very unstable in the medium and long term, it is not uncommon to increase or decrease 40% in five years. In addition, coupled with the randomness of the borrower's remaining residence years, the design of reverse mortgage loan is quite complicated.