Which type of mortgage allows homeowners to receive monthly payments while borrowing against their home equity?

A reverse mortgage is designed specifically to enable homeowners, typically older adults, to access a portion of their home equity without the requirement to make monthly mortgage payments. Instead of the homeowner making payments to the lender, the lender pays the homeowner based on the equity accumulated in the property. This arrangement allows homeowners to receive monthly payments or a lump sum while still living in their home.

The amount that can be borrowed is influenced by factors such as the borrower's age, the home's value, and current interest rates. This financial product is particularly useful for retirees looking to supplement their income while remaining in their residences. The loan is ultimately repaid when the homeowner sells the house, moves out, or passes away, at which point the home’s value is used to settle the debt.

In contrast, the other types of mortgages mentioned do not provide the same advantages. A conventional mortgage typically requires monthly payments towards both principal and interest from the onset. An open-end mortgage allows borrowers to access additional funds but does not provide monthly payments in the same manner as a reverse mortgage. Lastly, a balloon mortgage involves lower initial payments but requires a large payment at the end of the term, which does not align with the concept of receiving ongoing payments while utilizing home equity.