What type of mortgage involves a lender making payments to the borrower based on their equity, with repayment deferred?

A reverse mortgage is specifically designed to allow homeowners, typically older adults, to convert a portion of their home equity into cash. In this arrangement, the lender makes payments to the borrower, effectively providing them with funds based on the equity they have built up in their home. The key aspect of this type of mortgage is that the repayment of the loan is deferred until a specified event occurs, such as the borrower moving out of the home, selling the property, or passing away.

This type of mortgage can be beneficial for retirees or individuals on a fixed income, as it enables them to access funds without the burden of monthly mortgage payments. The loan balance increases over time due to accumulated interest, but borrowers do not have to repay the loan until they trigger one of the aforementioned events. This distinguishes reverse mortgages from other types of loans where repayment is typically required on a regular schedule.

Other options like conventional mortgages, interest-only mortgages, and fixed-rate mortgages do not involve this mechanism of deferring repayment based on equity; instead, they require regular payments of principal and interest or structured repayment schedules.