What are the five components that define a reverse mortgage?

The correct answer outlines the five key components that define a reverse mortgage, aligning perfectly with how these financial products are structured and regulated.

First, reverse mortgages often involve negative amortization, where the loan balance can increase over time as interest is added to the principal, rather than the borrower making monthly payments. This unique feature allows homeowners to convert a portion of their home equity into cash without having to sell their home.

Second, it is a requirement that the borrower must be at least 62 years old to qualify for a reverse mortgage. This age requirement is in place to ensure that only older homeowners, typically those who are looking for financial assistance in retirement, can access the benefits of a reverse mortgage.

Next, borrowers must be responsible for paying their own property taxes and homeowners insurance. This component is crucial because despite the loan structure, borrowers still maintain ownership of their homes and must adhere to obligations that come with homeownership.

Additionally, mandatory counseling is another critical component. This process ensures that prospective borrowers fully understand the implications of taking out a reverse mortgage, including costs, responsibilities, and alternatives available to them.

Lastly, reverse mortgages are classified as non-recourse loans. This means that the lender can only recoup the loan amount by the sale of the