Senior citizens and retirees can use a reverse home mortgage for meeting their cash demands. They can use their home as a source of tax free income. Under this scheme, a person receives a cash amount equivalent to the value of his home. The cash can be received either as a lump sum or in the form of monthly payments. The beauty of a reverse home mortgage is the lack of any tax, since the cash payments are considered a loan.

Reverse home mortgages are offered at numerous interest rates. The amount that one receives depends on the person's age, value of home and its location. The monthly payment is guaranteed as long as the person lives. The money obtained by reverse home mortgages can be used to pay taxes and insurance costs. A major advantage of this kind of loan is that the borrower owes only as much as the house is worth, irrespective of the amount actually received. The loan is paid off when the house is sold or the person dies. In case there is a surplus after the house is sold, the borrower?s heirs receive the remaining amount.

Like all good things in life, the benefits promised by reverse home mortgages do not come for free. This kind of transaction can be expensive at times. Reverse home mortgages usually come with high closing costs. The monthly interest can add up gradually. Additionally, service fees and mortgage insurance can increase the loan balance. A large loan balance can result in the reduction of the estate size that the person's heirs are to receive.

Applying for a reverse home mortgage is a complex task. A person has to receive counseling before applying for one. A major reason for the complexity is the types of reverse mortgages that are available. The types are HUD-backed mortgage, lender-insured mortgage, and the uninsured mortgage. A homeowner should seek counseling from a Department of Housing and Urban Development (HUD)-approved counseling agency or an AARP trained telephone counselor. The counselor provides the necessary information and determines whether the person is eligible for the scheme. A certificate proving that counseling was done is given to the homeowner. This certificate is required during the application process, and is given to the financial agency which provides the loan.