A reverse mortgage allows seniors to use the equity in their home and receive tax-free income without having to give up ownership, or make a monthly payment. The money that is received is paid back when the home is sold, usually after the owners have died or moved into other living arrangements. The amount of money received depends mainly on your age, how much the house is worth, the interest rate, and the current mortgage balance, if any.

You can receive the money basically three different ways: a lump sum payment, fixed monthly payments, or a line of credit that can be accessed whenever needed. There are dangers of reverse mortgages associated with each of these options so these must be used carefully.

Reverse home mortgage can be safe and beneficial products for the homeowner, given the right application and the right circumstances. Those most likely to derive optimal benefit from them are of course senior citizens. But reverse home loan also have a down side, the disadvantages. These range all the way from fraudulent firms to loan interest rates. The dangers of reverse mortgages can prove to be real traps that could make these types of mortgages not so attractive after all. So do be very careful not to lose your money or even worse, your home.

Many times, reverse mortgages are presented with adjustable interest rates. Keep in mind, these rates are adjustable, and the likelihood is that they will adjust upwardly. Even if the adjustable rates are lower, always choose fixed interest rate loans. Over time, the variations in the adjustable rate loans may be more costly an actual conditions.

Reverse mortgage contracts have clauses that bind you to the property as your fundamental residence. This, of course, means that a change in residence, even if it’s to a nursing home, can mean the property goes back to the mortgage lenders who have the right to sell the house to recover their investment. The amount of home equity left after what is owed is then distributed to the owner. The could mean, not only monetary losses, but a loss of the house!

Make sure that you are very aware of the common dangers of reverse mortgages. One of the biggest problems encountered with a reverse mortgage is with the sudden influx of cash. It can be too easy to go off and spend this somewhat unexpected, and often large, amount of money. Be on your guard against this temptation.

There are three common options when you acquire a reverse mortgage: one large payment, fixed payments on a monthly basis, or an accessible credit line. Consider each option and don’t forget the dangers of reverse mortgages no matter which you choose. A reverse home loan can have disadvantages. Reverse mortgages also come with a clause that binds you to stay at the house as your primary residence. This means that any change of residence, even to a care- facility will mean that the house reverts to the reverse mortgage lenders who would sell to recover their money. The home equity beyond what is owed is then paid to the owner.

- Jonathan Drake

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