Just what is a reverse mortgage? It is money paid to you by a lender using the equity in your own home while you still live there and enjoy all homeowner benefits. Who benefits from this arrangement? Any one who needs or wants money (for daily expenses, special expenditures, repairs, home nursing expenses, or to pay off the existing mortgage) but whose money is tied up in the investment of their home. But there are some things you need to understand.

In 1989, the Department of Housing and Urban Development introduced reverse mortgaging to help homeowners 62 years and older exchange equity in their homes for cash payments that can be made in different ways: lump sums, monthly income, or a line of credit or a combination. This income is not taxable and does not affect Social Security benefits. And there are no income requirements. Payments to the homeowner are based on three factors: a percentage of equity held in a home, an annual percentage rate applied against that equity, and the borrower’s life expectancy.

This is a very appealing concept to many people, because (if they sign up with FHA) they are guaranteed, through the Federal Government, money for daily living expenses until they move, sell, or die. At this point, the house is sold or the heirs pay off the loan and the interest on the loan. Never can the debt be more than the worth of the property.

Recently, a number of scams have turned up. Of course, they usually do, when there are seniors or "easy money" at stake. Thousands of dollars have been bilked from citizens by companies who charge a percentage of the loan up front to help "you get reverse mortgage information from the Government." This is totally bogus, since HUD (Department of Housing and Urban Development) will give out this information free to anyone who asks.

Last Spring HUD has learned of several companies who charge seniors as much as 10% of the amount borrowed. This is a scam that is charging thousands of dollars for nothing. Now HUD is prohibiting all Federal Housing Administration-approved lenders from dealing with such companies. Any lender that knowingly does will be barred from future HUD programs.