A reverse mortgage is a home equity loan that permits you to convert some of the equity in your home into cash while you retain ownership. This can be an attractive option for senior citizens who may find themselves “house rich” but “cash poor”, but it is not right for everyone.

Equity is the difference between the appraised value of your home and your outstanding mortgage balance. The equity in your home rises as the size of your mortgage shrinks and/or your property value grows. In a reverse mortgage, you are borrowing money against the amount of equity in your home.

Most reverse mortgages do not require payment of principal, interest and certain fees as long as you live in your home. The money can be used for anything, including living expenses, home repairs and renovations, medical expenses, credit card debt, education, or travel. If you have an existing mortgage, the lender will require that part of the reverse mortgage be used to pay off the balance of the existing mortgage.

In a regular mortgage, your monthly payments reduce your total debt until it is paid off. In a reverse mortgage, your total debt increases as the lender gives you more money. Reverse mortgages are rising-debt loans; meaning that the interest is added to the principal loan balance each month. Since the interest is not paid on a current basis, the total amount of interest you owe increases significantly with time as the interest compounds. With a reverse mortgage, you retain title to your home, so you remain responsible for payment of the taxes, repairs and maintenance.

With a reverse mortgage you can never owe more than the value of the home at the time the loan is repaid. Reverse mortgages are “non-recourse” loans, which means that if you default on the loan or it cannot otherwise be repaid, the lender cannot look to your other assets to meet the outstanding balance on your loan.

Reverse mortgages are complex loans typically available only to homeowners older than 61. They permit owners to borrow against their houses. They do not require loan repayment until the borrower moves out of the home or dies. Then the loan is repaid from the proceeds of selling the house.

Reverse mortgages can be very expensive compared with other kinds of loans, and the amount owed grows every month. Because of these high costs, someone borrowing only a small amount for a short time is probably better served with another kind of loan, like a home equity line of credit. If borrowers need a large amount, they should consider alternatives to a reverse mortgage.

Loans make sense only for borrowers who expect to live in their home for a number of years. Some financial advisers say anyone who may move in less than seven years should not take out a reverse mortgage.

Repayment of a reverse mortgage is deferred until the homeowner moves or dies. The amount owed increases over time. If a borrower lives in the home for many years after getting a reverse mortgage, the debt can grow to equal the entire value of the house, meaning heirs will not receive anything.

It is almost always a bad idea to use a reverse mortgage to pay for a vacation or to buy a risky investment, like stocks or deferred annuities.

Cash from a reverse mortgage can be paid out in several ways, including a lump sum, a monthly payment, a line of credit or a combination of those. If you do not need money right away, it is usually a bad idea to take all the money upfront, since it starts accumulating interest charges immediately.

Because reverse mortgages are complex, homeowners should seek advice from an independent adviser before speaking with a sales agent or mortgage broker.