As the saying has it - if it sounds too good to be true, it probably is! And a plan in which your lender makes payments to you rather than you making monthly payments to them, certainly sounds too good to be true. However, a reverse mortgage really is a useful financial option for many older homeowners - it is similar to a home equity loan, in that it allows older homeowners to use some of the equity in their home as tax free income. A reverse mortgage doesn't work for everyone - and like most financial plans, there are advantages and disadvantages to it.

The first requirement is that you must be aged 62 or over. However, there are no specific requirements concerning health or income - in fact, you don't need to have an income, or be in excellent health in order to qualify for a reverse mortgage. The amount of money that you can receive is based upon the equity in your home, so the more your home is worth, and the less you owe on your mortgage - the more you can borrow, just as with a traditional home equity loan.

Most reverse mortgage lenders require a person to own their home outright or have just a few years left on the mortgage. Generally speaking, the older you are, the more you can expect to borrow. The money can be obtained in a lump sum, a line of credit or any combination of the two. And in the event of your death, the loan balance along with any interest, is paid back from the sale of the house.

There are some other requirements you must meet - you must have no outstanding liens against your home. If you currently have a debt that is secured against your home, that loan must be paid before you take out a reverse mortgage. In some cases, it may be possible to pay back the loan with the money you obtain from taking out the reverse mortgage loan.

One important feature of a reverse mortgage is that it can only be applied to your primary residence, if you own more than one home. The type of home you live in can make a difference - generally, you can take out a reverse mortgage if you live in an apartment, a manufactured home or a planned unit development - but not if you live in a cooperative or mobile home.

The big advantage of a reverse mortgage is clear - you are borrowing against the value of your home, with out having to worry about paying it back. A reverse mortgage also has the advantage that in the event of your death, any outstanding loan amount is repaid from the estate. A reverse mortgage is also an effective way to plan for such costly things as long term care - it also gives you the option of having money available should you need it.

It can be expensive to take out a reverse mortgage - the charges and fees tend to be a lot higher than those associated with a traditional loan, although they can usually be included in the loan amount. Because of the high costs, it isn't the best option if you are planning to sell your house and move within a few years. The Department of Housing and Urban Development offers a reverse mortgage product with lower fees to homeowners who qualify. And unfortunately, the terms and conditions on a reverse mortgage can be complicated.

A reverse mortgage is not usually the best option if you are intending to leave your home to your children or other family members. It's possible that your home may have to be sold to a third party in order to pay back the outstanding loan amount. However, if you have no plans for your children to inherit your home, a reverse mortgage may well be the best option. Most experts advise you to discuss your plans with children and other family members.

Always seek legal and financial advice if you are thinking of taking out a reverse mortgage. This option isn't for everyone - but it is an effective way to borrow money and ensure financial stability as well as peace of mind for older homeowners.