Definition

• A reverse mortgage is a financial vehicle that allows a homeowner to use the equity in his house to pay for other things such as daily expenses or medical needs. This transaction involves a bank providing money to a homeowner based on home equity. There are no monthly repayment requirements; repayment to the bank is required only when the homeowner moves out of his residence or dies. According to the Law Offices of Michael McCarthy, the amount available for a reverse mortgage is typically half of the amount of equity in the home.
  
  

Credit Qualification

• A reverse mortgage is especially appealing to a person with bad credit because there is no credit requirement for the loan. This is because the homeowner, in effect, is borrowing from himself.
  
  

Tax Treatment

• According to the Federal Trade Commission, the money obtained from a reverse mortgage is not taxable. In addition, it does not affect the amount you receive from the Social Security Administration.
  
  

Financial Flexibility

• With a reverse mortgage, a homeowner can choose to receive the money as a monthly stream of income or as a one-time payment, whichever best suits his financial needs.
  
  

Stress Free

• Taking out a reverse mortgage has less stress associated with it than getting a traditional loan because this financial vehicle is backed by money already accumulated in the value of the home.
  
  

Access

• For people who need money to pay off high medical bills, pay credit card companies or help a son or daughter with college expenses, a reverse mortgage provides an easy way to address these financial needs and get access to funds.
  
  

Downsizing

• A couple older than 62 whose kids have left home and who want to reduce their expenses can purchase a new home from the money obtained from the reverse mortgage. The reverse mortgage is repaid with proceeds from the sale of the original home. According to the Federal Governments Housing and Urban Development program, one of the reasons for the program is to allow seniors to locate their homes closer to family members.
  
  

Foreclosure

• A reverse mortgage can also help a family who faces foreclosure because they are behind in their mortgage payments.
  
  

Warning

• Individuals considering a reverse mortgage should be cautious if a salesperson approaches them about taking out a reverse mortgage to fund an investment. There are risks associated with any investment, and the equity in your home could be at risk.