Reverse equity mortgages have always been a popular topic on our national radio show and in our e-mails.   Thanks to the stockmarket meltdown and housing collapse, many Americans in their 60s and older do not have a lot of savings on which to fall back and are wondering whether a reverse equity mortgage is right for them.

For those who are financially strapped ("house rich" and "cash poor"), a reverse mortgage may be a viable way to bring in badly needed income in these tough economic times. For many older Americans, the equity in their home is still their biggest asset.

But reverse mortgages aren't for everyone.  And the FBI recently issued a warning that reverse mortgage scams have skyrocketed.  So let's look at the pros and cons to see if a reverse mortgage might be a good option for you.

The ABCs of a Reverse Mortgage

A reverse mortgage is a loan based on the value of your home that doesn't have to be paid until the owner permanently moves out or dies. The balance of any equity in the home, after the loan is paid off, goes to the borrower or his or her heirs.

Here's how they generally work:

There is, generally, no minimum income or credit rating to qualify for a reverse mortgage, just substantial equity in the home.

How much you'll receive from a reverse equity mortgage depends on a number of factors such as: age of the homeowner, equity in the home, appraised value of the home, and which loan program that you choose for payment.

Also, the Housing and Economic Recovery Act of 2008 raised the maximum amount for reverse mortgages from $417,000 to $625,000, depending on where you live.

After paying a variety of fees upfront, you receive monthly payments, a lump sum, a credit line … or a combination of these options. In other words, the financial institution pays you (instead of the other way around when you pay off the loan to the institution) but you retain the title.

One benefit of a reverse mortgage is that the payments are not taxable, and they generally do not affect Social Security or Medicare benefits.  

To help you make the best decision for your situation, let's talk about the important features of these loans so you know just what you may be getting into.

Next: Key Elements of a Reverse Mortgage

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