Federal Housing Administration

Reverse mortgages: A word of caution

As house prices have increased, many older Americans may be tempted to tap the equity in their homes with a reverse mortgage, which is a loan that allows homeowners 62 and older to convert a portion of the equity in their homes into cash.

Most reverse mortgages are home equity conversion mortgages (HECMs) offered through the Department of Housing and Urban Development and are guaranteed by the Federal Housing Administration.

In addition to the age requirement, to qualify for a loan you need to own your home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan and you must live in the home. You also must be able to pay real...