Life expectancy has risen significantly over the past decades. In light of this rise many seniors find themselves in a position of owning an expensive home with little other savings or financial resources for their day to day needs. As a result many seniors lead a sparse life. The benefactors in these situations are often their future heirs.

A reverse mortgage allows seniors in situations similar to the one described above to mortgage their home in exchange for a loan or regular timely tax free payments by the lender. The loan is usually not repaid until the borrower sells the property, moves into a retirement community or passes away.

In a reverse mortgage, ownership over the property does not pass to the lender in any stage. When the loan repayment is due it is financed by selling the property or refinancing the reverse mortgage.

There are requirements for qualifying for a reverse mortgage. In the US the borrower must at least be 62 years of age. There are no guarantees required for a reverse mortgage.

The relevant parameters when considering a reverse mortgage are:
1) The age of the borrower
2) The value of the property to be mortgaged
3) Payment times
4) Interest rates

Payments to the borrower are a function of those parameters. A borrower can be paid a lump sum or monthly payments. A reverse mortgage is actually a rising debt loan with payments and interest added to the principal loan balance each month.

Other costs of reverse mortgages are closing costs usually comprised of a percent of the property. Title insurance premiums and loan origination fees are typical. These add to the normal closing fees charged by the lender.

The loan ends when the property is no longer the primary place of residence for the borrower either as a result of selling it, moving to a retirement home or in case of death. The mortgage is usually paid off by the proceeds of the property sale either by the borrower or the lender. It can also be refinanced by the heirs. In case the proceeds are not sufficient to pay off the loan, the lender absorbs the difference.

Key advantages and disadvantages of reverse mortgages are:

Advantages of Reverse Mortgages:

1. Enables seniors to make use of their home equity in order to increase their standards of living in their senior years which are often characterized by a shortage of financial resources.
2. A reverse mortgage requires no guarantees on the side of the borrower aside from the property itself.
3. Enables seniors to support other family members today instead of as an heirloom. It enables seniors to decide how and when to aid the potential heirs.
4. A reverse mortgage might also assist financing required payments for health care or nursing and also help finance the move to a retirement home.
5. A reverse mortgage is a great solution to avoid taxes on payments made to the borrower.

1. Family members might often require financial assistance. In case of a lump sum reverse mortgage the senior might find himself spending the money unwisely.
2. Generally, reverse mortgages tend to be more costly then regular ones as they are rising debt loans with interest added to the principal loan balance each month.
3. As the debt compounds with time it is possible that at repayment most of the property's value will be used to repay the loan leaving only a fraction of the original value to the heirs.
4. There are other alternatives then reverse mortgages. Some might be more financially sound (like selling the property and renting an alternative one).
5. Relatively high rates paid for closing a reverse mortgages, often a percent of the property's value.