Many seniors who are looking for ways to meet their everyday expenses or one-time costs are turning to a kind of loan called a reverse mortgage. Reverse mortgages are often marketed as a solution for seniors who are "house-rich, cash-poor". They allow homeowners over age 62 to use their home equity while still living in the house, without having to make monthly loan payments.

However, this type of loan is extremely complicated and often much more expensive than other financial options. If you're considering a reverse mortgage for yourself or your parents, it's a good idea to consider all your alternatives and get professional advice or counseling.

HOW REVERSE MORTGAGES WORK
Traditional mortgages are the kind of loan you're probably used to. You borrow a sum of money and pay it off, with interest. Over time, your debt goes down, and your equity goes up.

Reverse mortgages turn that model on its head. The lender pays you an amount called a loan advance, whether it's in a lump sum, periodic payments, or as a line of credit. Over time, your debt goes up, and your equity goes down.

When the loan ends — usually when you die or move out of your house — you or your heirs must pay the balance of the loan. If your heirs pay the loan back by selling the house, they get to keep any remaining equity. Or your heirs could refinance the reverse mortgage, paying it off as a traditional mortgage. The amount you or your heirs owe is limited by the value of your home at the time your balance is due.

IS IT INSURED?
Some reverse mortgages are insured by the Federal Housing Administration (FHA). They guarantee that you'll receive the full amount of your loan even if your lender defaults.

Some reverse mortgages are insured by the lender. They may be more flexible than FHA-insured loans in terms of how much you can borrow. However, their costs are generally higher than FHA-insured loans.

Whether insured by the FHA or by the lender, you won't have to pay back an insured reverse mortgage until you die or move out of the house.

As for uninsured reverse mortgages, be very careful. They may seem attractive because they don't charge an insurance premium, which lowers the cost. But they carry real dangers. Uninsured reverse mortgages pay you monthly loan advances for a fixed term, but when that term is up, your balance is due. If you're still alive, you may have to sell the house and move to repay the loan.

A COSTLY SOLUTION
With a reverse mortgage, you'll have to pay interest and probably most of the following fees:

• Appraisal fee
• Closing costs
• Insurance
• Originator fee
• Annuity premiums

Closing costs alone are usually in the thousands of dollars. You can finance your fees and costs by making them part of your total loan, although you'll accrue finance charges on them from the first month. All told, total fees and interest may be 50% to 70% of the amount you borrow.

QUALIFYING FOR BENEFITS
Social Security, Medicare, and Medicaid don't count reverse mortgage loan advances as income. But if you have the money in your bank accounts at the end of the calendar month, your assets may affect your eligibility for these government benefits. Plus, if your loan advances are paid for by an annuity, they may count as taxable income.