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Working of a Reverse Mortgage In a reverse mortgage , it is actually the lender who makes payments to the homeowner instead of the homeowner making routine payments to the lender. Only the homeowner can choose the payment mode as well as the option of only paying interest on the proceeds received.    The homeowner doesn’t need to pay anything up front because the interest is gelled into the loan balance. Additionally, the house stays under the name of the homeowner. The homeowner’s debt increases over time and home equity usually decreases, over the loan’s mortality.   For a forward mortgage as well as reverse mortgage , the home is supposed to be the collateral. After the death of the homeowner or if he decides to shift or move, the profits from the home’s sale go straightway to the lender who eventually has to pay off the reverse mortgage’s principal, interest, mortgage insurance, and fees. Taxes do not apply, on reverse mortgage proceeds. The Income Tax considers the ...