I f you’re at least 62 years old and own your home, you can boost your income with a reverse mortgage. Soaring home prices have made banks eager to offer the largest reverse mortgages ever. These loans turn the equity in a house or condominium into tax-free income while allowing the home owner to live there for the rest of his/her life. The money is paid in a lump sum, in monthly installments or as a line of credit.

A reverse mortgage typically doesn’t have to be repaid until the home owner dies or sells the home. The loan also pays for insurance that protects the bank if the borrower outlives the value of the home. After the owner’s death, his heirs can either pay off the loan and keep the home or sell it to satisfy the debt.

Reverse mortgages are most useful for people with valuable homes but little income. They can spend the money any way they wish—on living expenses, medical bills, even travel.

Who qualifies

A reverse mortgage is available only on your primary residence. It can be refinanced if the home appreciates or interest rates drop. There are no income or credit requirements.

As with a regular mortgage, you’re responsible for keeping the home in good condition and paying for homeowners’ insurance. The lender can demand early repayment if you let the home deteriorate, so you must decide if you are up to maintaining it. Be sure that you can afford to pay someone to do the chores when you no longer can do them.

Drive-by inspections are conducted every four years. If deterioration is spotted, a full inspection is required.

How it works

The size of the mortgage depends on...

Your home’s value. The more your home is worth, the more you can borrow.

Your age. The older you are, the more you can borrow because the lender expects to be repaid sooner. Rule of thumb: Subtract 10 from your age to get the percentage of your home’s value that you can borrow.

Current interest rates. The lower the interest rate, the more you can borrow.

The type of loan program you choose. There is more than one type of reverse mortgage available...

FHA reverse mortgages (available through HUD). About 90% of reverse mortgages are arranged through banks and mortgage companies via the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program. Amounts vary by region.

Federal law requires anyone considering a HUD reverse mortgage to get counseling from the US Department of Housing and Urban Development (HUD). 800-569-4287, www.hud.gov (click on “Senior Citizens,” then “Reverse Mortgages for Seniors”).

Proprietary mortgages. Fannie Mae Home Keeper Mortgages offer loans of up to $417,000 through banks and mortgage companies. The amount you can borrow is based on your home’s appraised value or Fannie Mae’s loan limit for your locale -- whichever is less. For more information, go to www.efanniemae.com (search under “home keeper”). Drawback: The rate is higher than on an HECM and you can borrow less relative to the home’s value.

Cash accounts. This type of loan, available from any reverse mortgage lender, often is a better option than a Fannie Mae reverse mortgage for homes worth more than the FHA limit (currently in the $300,000 range). No-closing-cost and no-points options are available, unlike with government loans.

Expenses to watch

Interest rates are adjustable. Monthly interest charges are added to the balance of the loan, so the borrower never has to make a payment. While these charges increase the balance of the mortgage, you or your heirs will never have to pay back more than the value of the house at the time of the sale.

Closing costs can be higher than on a conventional loan. These costs also are rolled into the loan. They include 2% of the home’s appraised value for insurance to continue making payments should the borrower outlive the home’s value... 2% of the loan’s value in points... a monthly service fee... and standard closing costs for the area.

A reverse mortgage calculator is available at the National Reverse Mortgage Lenders Association site, www.nrmla.org, and the AARP site, www.aarp.org. Because of the costs, a reverse mortgage is best if you don’t plan to sell your home within five years.

Caution: Many loans require repayment if the home is unoccupied for a year.