Here is an excerpt from Senior Citizens Guide explaining reverse mortgages:

Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining are eligible to participate in HUD’s reverse mortgage program. The program allows homeowners to borrow against the equity in their homes.

Senior Homeowners can receive payments in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis as a line of credit.

Homeowners whose circumstances change can restructure their payment options.

Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the borrower lives in the home. Lenders recover their principal, plus interest, when the home is sold or refinanced by the heirs. The remaining value of the home goes to the homeowner or to his or her survivors. If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.

The size of reverse mortgage loans is determined by the borrower’s age, the interest rate, and the home’s value. The older a borrower, the larger the percentage of the home’s value that can be borrowed. For example, based on a loan at today’s low interest rates, a 65-year-old could borrow up to 60 percent of the home’s value, a 75-year-old could borrow up to 70 percent of the home’s value, and an 85-year-old could borrow almost to 80 percent of the home’s appraised value — up to the FHA loan limit for each city and county.”

Is this system designed to prey on the elderly?

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