“Forward” Mortgages

You can see how a reverse mortgage works by comparing it to a “forward” mortgage—the kind you use to buy a home. Both types of mortgages create debt against your home and affect how

much equity or ownership value you have in your home. But they do so in opposite ways.

“Debt” is the amount of money you owe a lender. It includes cash advances made to you or for your benefit, plus interest. “Home equity” means the value of your home (what it would sell for) minus any debt against it. For example, if your home is worth $150,000 and you still owe

$30,000 on your mortgage, your home equity is $120,000.