You're getting older and you can see all the equity sitting in your home, but you need money now! What are your alternatives? Well, you could sell your home and buy something smaller and spend the difference or you could consider taking out a reverse mortgage. But if you opt for a reverse mortgage, there some very important things you need to know. Basically it works like this. You have equity that has grown in your home by either house prices going up or you paying off your mortgage. You can now actually borrow the equity and pay interest on it which is basically backwards from a traditional mortgage. Now you may be asking yourself why you would do that. First, you get a monthly check from the bank that you can spend anyway you want. You or your estate pays the total amount you were given over time plus interest.

This is where you have to watch reverse mortgages. The interest rates can be extremely high and you can often owe up to 3 times what you were paid. Often these mortgages are paid back when you die and your estate handles it or when you sell the home. To qualify for one of these, you have to actually be the owner of the home and live in it. Remember, it doesn't work for rental properties. Each company that offers reverse mortgages establishes their lending guidelines on the amount of the loan but a good rule to follow is the older you are and the more expensive your home, the greater the loan amount.

One of the advantages about a reverse mortgage is that you can actually pay it back anytime you like. They become immediately due if you die however, so make sure to include it in your will. If you decide not to pay your property taxes, insure the property or maintain it, the lender can actually call the loan. So be sure to take care of these things or you may get yourself into trouble. We recommend that you speak to your lawyer before going ahead with a reverse mortgage. They can be complicated and confusion and it is critical you understand exactly what you are getting yourself into.