So how does the bank get paid? One possibility is that the mortgage lender resells the reverse mortgage after capturing the origination fee. Alternatively, if the mortgage lender holds onto it, heirs may be asked to pay back the entire loan plus interest upon the death of the mortgage holder, or the bank can sell the house and get its money back.

It all sounds pretty good, especially for retirees who are strapped for money and would like to tap the equity in their home.

What are the limits and pitfalls?

You have to be at least 62 years old to qualify for this Federal Housing Administration (FHA)-insured loan (officially called a “Home Equity Conversion Mortgage”). You need to have equity in the house, where the appraised value of the house is more than the first mortgage. Closing costs do apply and include appraisal fees, title insurance and high origination fees (many banks will finance the closing costs so out-of-pocket expenses can be minimal).