The popularity of a reverse mortgage loan has increased dramatically in the past several years. So what exactly is a reverse mortgage loan anyway and what are the advantages and disadvantages of getting this type of loan?

Essentially, a reverse mortgage is the polar opposite of a standard mortgage. Instead of getting a loan to buy a house you are getting a loan for the part of the house that you already own - the equity that you have built up over the years.

To be eligible for a reverse mortgage loan you must be at least 62 years old and fully own your home or have a small amount left to pay. The loan terms depend in large part on your age, the interest rate of the loan and the present market value of your home.

There are two popular reverse mortgage loan products on the market today: 1) The Home Equity Conversion Mortgage (H.E.C.M) and 2) The Jumbo Mortgage. The H.E.C.M accounts for 90 % of all reverse mortgage loans. It is popular because it is insured by the Federal Housing Authority (FHA), provides the highest payouts for homes valued under $400,000 and has the most payout options.

The Jumbo Reverse Mortgage (Proprietary Reverse Mortgage) is structured and backed by private companies. This type of loan is popular if your home values in the $400,000 to $5,000,000 range because you can get a higher payout than with the H.E.C.M. Not all states provide this type of loan and there are more restrictions on the payout options.

With a reverse mortgage loan you are borrowing against the accrued equity in your home. You can receive the payout of the reverse mortgage loan in several ways depending on which of the two popular loans you choose. You can receive a lump sum payment, you can receive it divided into equal sums paid out monthly, you can receive is as a line of credit, or even a combination of these payouts.

Regardless of the way the loan is paid out to you, no repayments are made on a reverse mortgage until you move, the property is sold or you pass away. The final repayment of the loan obligation is designed to not exceed the proceeds from the sale of the home.

One of the main advantages of a reverse mortgage is that it is a very flexible financial planning tool. There are very few restrictions on how you receive and use the payout money. There are no income requirements so people often think the idea of a reverse mortgage loan sounds too good to be true. However, in the correct circumstances, this type of mortgage is a great way to increase your spending power in your retirement years.

There are only a few disadvantages of reverse mortgages, which include losing your eligibility status for low-income assistance. If you are currently eligible to receive Medicaid or will be in the future you need to make sure the payout income does not affect your status eligibility. If you plan to move in the near term the mortgage may not be a good idea because the loan becomes due when your home is no longer your primary residence. Finally, this type of mortgage will reduce your heir’s inheritance even though you can still leave the house to your heirs in your will.

When you think about applying for a reverse mortgage loan it is important to research the loan instrument thoroughly. HUD at www.hud.gov is a good starting point for information on H.E.C.M. loans. Keep in mind that when you are choosing a company for your reverse mortgage loan, there are many different ones to choose from, so research is essential. Most importantly, NEVER enter into a contract if you are unsure about what you are signing.