A tiny fraction of the residential mortgage market, reverse mortgages made a comeback this summer, due largely to record low mortgage rates.

But some consumer advocates have advised older homeowners to consider other sources of cash before they take a knife to their home equity.

The Federal Housing Administration (FHA) insured an all-time high 1,800 reverse mortgages in June 2003, as senior homeowners turned to the loans to tap equity for cash.

The National Reverse Mortgage Lenders Association says that helped put the industry on pace to break the annual volume record for reverse mortgages by the end of summer if not sooner.

An option for cash-poor but equity-rich homeowners, reverse mortgages are equity loans and like equity loans, they enable borrowers to obtain loans on the debt-free portion of the value of the home. It's a "reverse" mortgage because the lender makes payments to the borrower, instead of the borrower making payments to the lender.

Homeowners who first purchased a home 10 to 20 years ago could be sitting on an equity gold mine, especially in regions where home prices have tripled or more in the past two decades.

To qualify for the special mortgages, you must be 62 or older and own your home outright or have enough equity to pay off the original first mortgage before drawing extra cash.

You can draw the cash as an immediate lump sum cash advance, as a credit line you use as you wish, as a monthly cash advance or in some combination of all three.

You repay the loan principle and interest later, from the proceeds of a sale when you move, sell your home or die. Failure to pay taxes, homeowners insurance and other conditions can also trigger a forced pay back.

Each loan comes with different qualifications, costs, loan maximums, monthly payments and a host of other esoteric details, making understanding and comparing them a bit difficult.

Two non-profits National Center for Home Equity Conversion (NCHEC) and AARP, along with FHA, offer detailed information on the loans.

The most popular reverse mortgage is the Home Equity Conversion Mortgage (HECM), the only federally insured reverse mortgage, insured by the FHA. To be eligible for a federally-insured HECM, a home owner must receive counseling from a U.S. Department of Housing and HUD-approved counseling agency.

Other reverse mortgages are offered by Fannie Mae lenders. National Reverse Mortgage Lenders Association consumer advocates advise homeowners not to sign for any reverse mortgage without such independent counseling and to carefully scrutinize other reverse mortgages and options from low cost public loans and Supplemental Security Income to outright selling the home.

"There's No Place Like Home: The Implications of Reverse Mortgages on Seniors in California," a 1999 Consumers Union study found both pluses and minuses with the loans and the Union, AARP and NCHEC advise older homeowners to consider all the options before signing on the dotted line.

Soon after, the federal government began limiting fees that could be levied on the loans and installed other protections.

Published: August 27, 2003

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.