Tap Into Equity With a Reverse Mortgage

The federal government requires consumers to meet with an independent counselor before they get a reverse mortgage, to discuss the financial consequences and identify possible alternatives. Typically, such loans have only been appropriate for those who intend to stay in their home for a long time, Scholen says.

Increased competition should help. With the baby-boomer generation approaching retirement age, more lenders are looking to enter the market or enhance their existing products. The number of federally insured reverse mortgages grew by 77% in 2006.

Some of the bigger lenders in this market, such as Countrywide (CFC Quote) and Bank of America (BAC Quote), now offer a wide selection of reverse mortgage products. That should translate into more flexible and attractive terms for borrowers.

Bell, the NRMLA president, expects to see new kinds of products tailored to specific needs, such as "jumbo" reverse mortgages for higher-valued homes and packages using reverse mortgages to finance other goods and services, such as long-term health care. Over time, he says, people will learn to "approach home equity in a different way."

AARP would welcome these developments, but Scholen cautions that the reverse mortgage industry is still in its infancy. He predicts it will be at least a few years before these loans become viable financial strategies worthy of inclusion in most people's retirement playbooks. "Unless you really need one," he says, "wait and see what develops."

Coming up next: Finding a professional home inspector.