Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you. Reverse Mortgages are not for everyone, but everyone 62 years or older should know what a reverse mortgage can do for them. Reverse mortgages offer a unique way to move forward into your retirement with extra income. They Can Enhance Your Retirement; people may want to consider the reverse mortgage as a way to generate cash flow. As they are becoming more and more popular, all senior citizens should understand how they work in order to make the right financial decisions.

What Is A Reverse Mortgage

Reverse mortgages are a special type of home loan that lets a homeowner convert the equity in his/her home into cash; they vary considerably in features, benefits, and costs. Reverse Mortgages are even more complicated than conventional mortgages and the consequences of various options are not always obvious up front. Reverse mortgages have been seen as a way to help seniors who are asset rich but cash poor remain in their homes and cover medical bills, home upkeep and daily living costs. Reverse mortgages differ from home equity loans in that most reverse mortgages do not require any repayment of principal, interest, or servicing fees as long as you live in the home.

What about the Interest Rate

Interest is charged on the outstanding balance and added to the amount you owe each month. The interest is not deductible on income tax returns until the loan is paid off in part or whole. The rates are determined on a program-by-program basis, but are typically similar to interest rates offered by Adjustable Rate Mortgages (ARMs). The rates are usually higher than average home loan rates.

Available Cash

The cash you get from a reverse mortgage can be paid to you in several ways: all at once, in a single lump sum of cash; as a regular monthly cash advance; as a "credit line" account that lets you decide when and how much of your available cash is paid to you; or as a combination of these payment methods.

Some of the Fees

As you consider a reverse mortgage, be aware that: Lenders generally charge origination fees and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. Reverse mortgages typically charge loan-origination fees and closing costs. When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender.

Who Qualifies

Homeowners who meet the eligibility criteria can complete a reverse mortgage application by contacting a FHA-approved lending institution such as a bank, mortgage company, or savings and loan association. Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining, and are currently living in the home are eligible to participate in FHA's reverse mortgage program. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations. Just remember, reverse mortgage borrowers are still homeowners and therefore are still responsible for taxes, insurance, and upkeep.