• A reverse mortgage leverages money out of your home equity.home sweet home image by David Dorner from Fotolia.com
  
  A reverse mortgage is a loan where equity in your home is used as collateral. Homeowners must be at least 62 years old and arrange to either receive a lump-sum amount or a monthly payment for a portion of the equity that they have in their home. Borrowers do not pay the loan back until they move out of the home or die, at which point it becomes a lien against the property that must be paid before the home may be sold.
  
  

What Are the Tax Implications of a Reverse Mortgage?

• An advantage to a reverse mortgage is that the money you receive is not taxable. This provides homeowners a means to cash out the equity in their home without being subject to gains taxes that would be assessed on profits if the home were sold. Interest that accrues on the loan isn't treated as a deduction, however, unless the principal is applied directly to home improvements, according to SmartMoney.com. Even then, homeowners may deduct only the actual dollar amount of interest paid out-of-pocket on the reverse mortgage instead of the balance of the interest amount, as with conventional mortgages.
  
  

How Do You Pay Off a Reverse Mortgage?

• If you receive a lump-sum amount in a reverse mortgage, you may make monthly payments toward reducing the principal. If you elect to receive periodic payments from the loan made against your equity, the loan is due when you leave the house or die. In both situations, if the reverse mortgage remains unpaid when the borrower dies, the heirs are responsible for paying the remaining principal left on the reverse mortgage. Depending upon the amount of your reverse mortgage and your heirs' financial situation, this may require them to sell your home after you move into a care facility or pass away.
  
  

Can My Home Be Taken Away from Me?

• Your home may not be taken away through a reverse mortgage. As long as the home in which you took out the reverse mortgage is your principal residence, you may remain in it, even if you outlive the life of the loan. When you die or move into a residential care community, your reverse mortgage becomes due.
  
  

Can I Finance Other Investments with a Reverse Mortgage?

• There are no regulations on how you spend the amount that you receive from a reverse mortgage, so, technically, you may finance other investments with the money. The interest rate and up-front fees involved with these instruments are usually very expensive, however, which makes borrowing against your home equity a poor financial decision most of the time, according to AARP.org. In many cases, investments made using the principal from a reverse mortgage won't yield a return that outpaces the interest on the principal, making it a losing investment.