It's a way of tapping what's probably one of your biggest assets: The equity in your house. Understandably, reverse mortgages seem pretty alluring to lots of retirees.
Here's how they work. So long as you're 62 or older, you get to draw down your home equity without repaying it as long as you stay in your house. You get the money up front, but the interest is deferred until you move out (in most cases, when you move to a nursing home or die).
However, the amount of equity you can pull out is far less than with a traditional mortgage. For example, an 80-year-old Chicagoan with a house worth $400,000 would probably be able to borrow only about $265,000. And the younger you are, the less you can borrow because it will be longer until the loan is paid back. So a 65-year-old in the same situation would get perhaps $220,000.
In 2013, Congress passed the Reverse Mortgage Stabilization Act which limits the amount homeowners can borrow in the first year to 60% of the maximum loan amount.
