Editor's note: As a special feature for April, TheStreet.com offers a series of 20 stories on everything you need to know about real estate. Today's installment is Part 5.
Grace Grimm was widowed in her 30s and raised three daughters and a foster son. Last year, the 72-year-old Hummelstown, Pa., native decided she was ready to "enjoy life a little bit," but felt she couldn't give up her job at Verizon (VZ - Get Report) and keep making the payments on her $265,000 house.
But rather than sell the house, she opted to take out a reverse mortgage that allowed her to pay off the balance of her original loan and get a line of credit to pay for maintenance and upkeep. "This is my home, and I didn't want to give that up," she says.
A reverse mortgage is basically a backward version of the loan you probably used to buy your house in the first place. In a typical "forward" mortgage, the lender gives you money for the purchase of property. You pay back the loan in installments over time, gradually reducing your debt and increasing your equity in the property.With a reverse mortgage, the bank gives you cash in exchange for a stake in the home you already own. You can take your money all at once, in installments, or in the form of a credit line. Every dollar you receive increases your debt, while your equity gets smaller.