Reverse Mortgages Pay You

Nov. 8 -- For Sondra Sheppard, a reverse mortgage has meant less part-time work as a nanny and tour guide, and more of what she really loves: art.

"The financial freedom lets me step back from other jobs and be an artist again," says Sheppard, 65, of Silver Spring, Md.

For Audrey Sommerhalter, 73, a reverse mortgage has enabled her to stay in the Long Island, N.Y., home where she's lived for nearly 50 years. The money, she says, has allowed her to "have a better quality of life … to be able to indulge in things that I had never been able to before."

Here, in brief, is how a reverse mortgage works:

With a regular mortgage, the bank gives you a loan and you pay it back every month with interest. With a reverse mortgage, you get a loan, but you don't have to make any payments as long as you live in your home. It's like selling your house without having to move.

The amount you receive is dependent on where in the country you live and how old you are. You must be 62 years old or older to apply — and the older you are, the more money you can get back.

There is a common misconception that borrowers no longer own their homes when they take out a reverse mortgage. That is not true.

But, if the borrowers spend all the money they're lent, they won't be able to pass their house on to their children — unless their children want to pay off the bank.

Sommerhalter says her children don't mind at all. "My children think it's a good idea," she says. "I don't have to worry about them. They have their own homes."

AARP: Know What You’re Getting Into

The AARP, formerly known as the American Association of Retired Persons, says while reverse mortgages can be very valuable for some seniors, these products are complex and involve high fees, and seniors should take advantage of free counseling sessions before signing up.

"It's not a decision you want to make quickly," says Bronwyn Belling, a reverse mortgage specialist with the AARP Foundation. "Talk it over with family and friends or other people you trust before you move ahead."