I have seen quite a few advertisements for reverse mortgages and often wonder if it's a good idea or not.  A reverse mortgage is basically a loan using the house or its equity as collateral.  It is intended for individuals who are 62+ years old who have paid off at least half of the mortgage on their home.  It is a low-interest mortgage that only requires pay back when you move out of the home or you pass away.  Once the house is vacated the owner or the estate will have 12 months to sell the house.  The proceeds from the sale will go towards paying off the reverse mortgage loan with interest and any excess will go to the owner or the estate.  If the sale of the home does not cover the reverse mortgage amount, the estate will not be responsible for the overrage.  

What are the pros of a reverse mortgage?

• No payments are due as long as you live in the home
• Interest rate is lower than traditional mortgages/home equity loans
• Retiree is able to get money out of home to live on and remain in the home
• Heirs will get proceeds of the sale that is over and above the reverse mortgage amount and proceeds are not taxable
• Income and credit score doesn't matter so it is easy to qualify

What are the cons of a reverse mortgage?

• Must do your research and call HUD for a counseling session
• You will pay closing costs just as if you are actually selling the home and will have the FHA mortgage insurance and loan origination fee.
• If you draw too much money in one month, it could affect your Medicaid.

Of course, you shouldn't consider a reverse mortgage if you are not in dire need of the money to make it through your retirement.  This is a loan meant for individuals who do not have enough money to live on day to day.