Shifting Your Mortgage Into Reverse

The amount you can get depends on your age, interest rates and the current appraised value of your home. These funds are distributed to you tax-free, either as a lump sum (for example to pay off a mortgage balance), a line of credit or lifetime monthly checks -- depending on how you set it up. The older you are, and the slower the interest rate, the more money you are eligible to receive.

Interest accumulates only on the funds you withdraw over your lifetime. You make no payments to the lender. The money you withdraw is yours to spend for any purpose. Upon the sale of the house, any remaining equity goes to you or your heirs.

You or your heirs can never owe more than the house is worth -- no matter how long you live and receive those monthly checks. The bank is protected against the possibility that you live longer than expected by FHA mortgage insurance on most reverse mortgages.

Important Considerations

However, there are some factors to be mindful of. Because you're essentially borrowing money from your mortgage, your debt in the home will grow just as your equity in it decreases. Also, when a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. In fact, if you have the loan for a long time, or if the value of your home decreases, there may not be any equity left at the end of the loan.