Tap Into Equity With a Reverse Mortgage

You must be at least 62 and have a substantial amount of equity in your home to qualify.

Unlike a home equity loan, you don't have to start paying back a reverse mortgage right away. The bill doesn't come due until you die or decide to move out of your house.

When Grimm passes on, her heirs can pay off the reverse mortgage and keep the home, or they may choose to sell the property. If the sale price exceeds the amount owed, her heirs can pocket the extra money. On the other hand, reverse mortgage debt is "non-recourse," so even if the property declines in value, the lender can never go after assets other than the home.

These loans can be attractive options for people like Grimm who wouldn't otherwise have the funds to retire. They are also well-suited for retirees hit with unexpected expenses such as large medical bills.

Another emerging market: people who want to enhance their lifestyles during the golden years. Peter Bell, president of the National Reverse Mortgage Lenders Association, says he has started hearing about borrowers using reverse mortgages to purchase everything from campers and second homes to motorcycles. "The notion these loans are just for seniors eating cat food is not correct," he says.

The fees can be hefty, so you should weigh the benefits and drawbacks carefully. Ken Scholen, the AARP's reverse mortgage expert, says these loans "are more expensive than most people realize or understand." He says a 74-year-old taking out a reverse mortgage on a $300,000 home could incur up to $15,000 in fees up front and be responsible for many thousands of dollars more in monthly charges. Many people decide to have these costs financed into the reverse mortgage.