When John Dugan, comptroller of the currency, warned a few weeks back that reverse mortgages pose significant risks to consumers, it touched off a big debate. Dugan said that although reverse mortgage loans do have some benefits, they also have some of the same characteristics of the riskiest subprime mortgages. He called for more oversight to make sure homeowners are being protected.

Reverse Mortgage Provides Cash Now
Reverse mortgages allow homeowners aged 62 and up to tap into their home equity. Benefits of these loans include homeowners not having to repay the money until they leave their home and being able to receive the funds in a lump sum or in installments. Also, the money can be used for any purpose.

Dugan’s concerns about reverse mortgages include:

—The fact that some lenders aggressively market investment, insurance, or annuities to seniors who apply for reverse home loans
—Misleading marketing claims by some lenders
—The lack of escrows for tax and insurance payments; not paying these fees can result in foreclosure.

Are Reverse Mortgages Too Complex?
Since Dugan aired his concerns, lawmakers, lenders, and others have weighed in with their concerns. Some say reverse mortgages are too complex and could be costly for seniors. “You may borrow $100,000 and 10 years later owe $200,000,” Sen. Claire McCaskill of the U.S. Senate Special Committee on Aging said at a field hearing this week. Others say reverse mortgage fraud is a growing concern, including inflated home appraisals.

Reverse Mortgages Can Help Seniors
But Jeff Lewis, chairman of Generation Mortage, of Atlanta, told the Chicago Tribune, “The whole purpose of our program is to make loans to seniors who don’t fit into the traditional market. Pointing that out as a harbinger of doom is ludicrous. Without [reverse mortgages], if people couldn’t get to the money in their house, they’d just have to sell them.

There certainly are pros and cons to reverse mortgages. Take the time to compare reverse mortgage quotes from several lenders to determine if this loan product is right for you.

Reverse Review magazine has an interesting article that examines whether or not reverse mortgages will help baby boomers answer President Barack Obama’s call to community service. Obama has called for Americans to get more involved with serving their communities. A new website, Serve.gov, has even been launched to connect Americans with volunteer opportunities. So exactly how can reverse mortgage loans contribute to senior volunteerism rates?

Fewer Bills, Less Stress
Reverse mortgage loans allow people to cash in the equity in their home, leaving them with more income for their expenses and no monthly housing payments. Some seniors on a fixed income are forced to take jobs to pay their bills, whether they want to work or not. Having income from a reverse mortgage means homeowners can have a financial cushion, so they may be in a better position to devote some of their spare time to community service. read more

Hundreds of thousands of seniors are having a difficult time because of the financial crisis. More than 600,000 seniors are delinquent or in foreclosure, according to AARP. For some seniors, a reverse mortgage could help them keep their homes and weather the economic storm.

Your Personal Bailout
AARP found that 25.5 million people over 50 have a mortgage, and many of them are on fixed incomes, making it difficult for them to catch up on missed payments. Even if you’re still making mortgage payments you could qualify for a reverse mortgage loan if your home equity is significant. If you already own ar home free and clear but have seen your retirement nest egg dwindle because of the financial crisis, a reverse mortgage could be the thing that allows you to continue living comfortably.

Why Use a Reverse Mortgage?
Not everyone has the same financial situation. But many people who take out reverse mortgage loans do so because they’ve encountered huge medical bills or other unexpected expenses. Other people use the cash from their reverse mortgage to pay for long-term care insurance. It’s not a good idea to take out a reverse home loan to pay for your kid’s college education.

Is a Reverse Mortgage Right for You?
So how do you know whether a reverse mortgage is a smart move in today’s economy? Ask yourself a few questions:
—Are you behind on mortgage payments but have a lot of equity in your home?
—Do you own your home free and clear but are struggling with medical or other large bills?
—Are you struggling with tax payments even though you own your home outright?
—Are you at risk of filing for bankruptcy or foreclosure?

Getting a reverse home loan is one possible solution to your financial woes. But it’s important to consider all the unique details of your situation before jumping into a reverse mortgage. Taking out a reverse home loan could cut into the amount of inheritance you wish to pass on to your kids. Also, over time the amount of equity you have in your home will fall. And last, even if you get a reverse mortgage, you’ll still need to budget your money wisely.

So you’ve decided to get a reverse mortgage but aren’t sure how you should take your cash. A big question many people have is whether it makes sense to take one big withdrawal or stretch out the payments. Let’s look at your options for getting paid.

Big Chunk of Money
A lump-sum payout would allow you to get all of your money right away. This could be good if you are responsible with large sums of money. It could also be useful if you plan to downsize to a smaller home and don’t want monthly mortgage payments. However, if you aren’t very good at handling large amounts of money, you may want to choose a different payment option. read more

Thinking of getting a reverse mortgage? It might be a good time to shop around to make sure you have adequate homeowner’s insurance, too. It’s good to compare different policies to find the best deal, especially if you’ve had the same coverage for many years.

When you tap into the equity in your house with a reverse mortgage loan, you won’t have to repay it until you leave you home. But if you don’t keep up with your homeowner’s insurance payments, you could be required to repay the loan early. That’s because your home will serve as collateral for a reverse mortgage loan. Mortgage lenders want to know that if they invest in your home by offering you a reverse mortgage it will be covered by insurance in case of a fire or accident.

Make sure the policy has replacement cost coverage. If your home were damaged or destroyed in a disaster, replacement coverage would pay for repairing or rebuilding it with similar materials.

In many cases, the amount of insurance you need will be less than the appraised value of your property. That’s because the appraised value includes the land, and only the structures on your property need to be insured with replacement cost coverage.

If your home is in a flood zone you also will be required to get a flood insurance policy when you get a reverse mortgage loan. Even if you own your home outright and don’t currently have a flood insurance policy you’ll be required to get on in a flood zone. The National Flood Insurance Program offers coverage for building property up to $250,000 and personal property up to $100,000.