Though Often Helpful, Reverse Mortgages Sometimes Abused . Like so many good things, they can also be abused. Typically, a reverse mortgage is a mechanism to permit a cash-short senior to liquidate a portion of his or her home equity to provide for care or other needs. To some elders, they are more attractive than traditional home-equity loans. The more traditional loans may be difficult to obtain without any income other than Social Security and a pension.
Reverse mortgages work very much as the name implies.
Rather than taking out a loan and beginning to make monthly payments of principal and interest, the reverse mortgage borrower receives a monthly check from the lender. That check, and the income accrued on earlier checks, is added to the balance, but usually no payments are due during the life of the borrower. Obviously, such an arrangement permits the gradual, planned withdrawal of home equity to pay for current costs of living. Most often, the reverse mortgage is used as a way of providing the small additional income required to keep an elder at home, and to delay any need for placement in a nursing facility or adult care home. Although the reverse mortgage permits years of built-up home equity to be used to finance current care needs, the drawback of the arrangement should be obvious.