When you take out a mortgage on your home, you receive a large chunk of money from the bank in order to purchase the house. You are then required to pay back the money, plus interest, each and every month until the entire mortgage is paid off. With a reverse mortgage, you are actually given money every month by a bank. Essentially, a reverse mortgage entails borrowing on the equity of your home, which can become helpful if you need extra funds and financial help. Of course, before you commit to a reverse mortgage, it is important to completely understand how this mortgage works.

To start, you must be at least 62 in order to receive a reverse mortgage. Those who wish to take out a reverse mortgage must also be the primary residents of the house being reverse mortgaged. Repayment of a reverse mortgage is deferred until the owner of the house dies, sells the house, or stops living on the property. A program also exists, called "Home Equity Conversion Mortgage (HECM) for purchase" that allows those 62 or older who wish to relocate (to be closer to family, for example, or in order to buy a home that will better meet their needs) to buy a house and receive a reverse mortgage at the same time. Using the HECM for purchase program allows seniors to keep more of the cash received from the sale of their previous home and often eliminates mortgage payments on their new home.

The overall amount of money you are able to receive on the reverse mortgage will vary depending on how old you are, the overall appraised value of the house, what the current interest rates are, and the area in which you live. Typically, the higher the value your house appraises at and the older you are, the more money you are able to receive from a reverse mortgage. This can be extremely helpful if you have sudden medical bills you are unable to pay off and need a regular influx of money without giving up your home.

Of course, the main downside to taking out a reverse mortgage is that you lose equity on the house. Another downside is that the upfront costs of taking out a reverse mortgage are large. However, a reverse mortgage may be the choice for you. It is important to take the time to fully research your options in order to determine the best one for your situation.