Reverse mortgages aren't for everyone

— -- After her husband died, Ernestine Boach felt she needed financial guidance. It was 2003, and Boach had just turned 62. An adviser urged her to take out a reverse mortgage, available mainly to those 62 and older, and use the money to buy deferred annuities.

"He told me that he had a wonderful deal for me," she says.

It turned out to be a huge mistake. Boach wasn't well-suited for a reverse mortgage, which is a loan against home equity that doesn't have to be repaid until the owner dies or sells the home. The estate repays the loan, plus interest and fees. The home is typically sold to make the payment.

But Boach had planned to leave her home to her daughter.

"It's in a trust for her, and I was assured that the home was going to be saved," says Boach, who is now 66 and lives in San Diego.

Reverse mortgages represent a small fraction of the mortgage market. But they're growing fast because of a tantalizing advantage: They let seniors with small nest eggs tap equity in their homes for cash, without having to repay the loans as long as they stay in the homes. As the oldest baby boomers turn 62 this year, they're likely to face high-pressure pitches for reverse mortgages.

As Boach learned, it isn't always a wise idea, especially during the early retirement years. There are other ways to draw income out of a home, such as a home equity loan, that are cheaper and more flexible, experts say.

The amount you can borrow in a reverse mortgage hinges on your age, the home value and interest rates. The older you are, the more you can borrow. Yet the average age of borrowers is falling.

"It's a generational shift," says John Rother, policy director at AARP. "Our parents' generation saw the home as a bedrock of security, and it was a good deal to pay off the mortgage and own it free and clear. Many boomers, on the other hand, are treating the home as a financial asset and are using it to borrow against its value."

Meg Burns, director of the Federal Housing Administration's Single Family Program Development, notes that "as the boomers come of age, they'll be thinking about their home as an asset in their portfolio" that can help ensure a comfortable retirement.