One American dream is home ownership. For many older adults, the continuing dream is living in our homes as long as we can. For that reason, reverse mortgages, which are a loan against the equity in your house, sound almost too good to be true. You have the option of receiving monthly payments that allow you to stay in your home, and the loan doesn’t require repayment until you die, sell your home or when your home is no longer your primary residence. The proceeds of a reverse mortgage are tax-free, and many reverse mortgages have no income restrictions.

However, you can also look at reverse mortgages as an expensive loan, because when you leave your home, you or your heirs have to repay the loan, plus interest. AARP, for one, recommends using reverse mortgages only as a last option for older homeowners who are cash-poor and face high health care costs. Others view a reverse mortgage as a good tool for older adults to manage their finances, especially when used in conjunction with other assets.

Getting Tough

Borrowers can choose from several options for reverse mortgage payments—from a monthly payment to a lump sum payment or using the funds as a line of credit—tailored to fit your needs. To discourage borrowers from using the reverse mortgage to take care of financial problems, such as paying off bills, the FHA launched new rules in October 2013, reducing the payment a borrower receives if they take the entire amount immediately (“Reverse mortgages: Safer, but far from risk-free,” February 7, 2014, CNN Money).

Requirements for Borrowers

The FHA requires borrowers to:

• Be 62 or older.

• Own your home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan.

• Have the financial resources to pay ongoing property charges, including taxes, insurance and other obligations, such as condominium fees.

• Use the home as your primary residence. Vacation property is not eligible.

Receive consumer information from a reverse mortgage counselor (one approved by the FHA) prior to obtaining the loan.