Q: My husband and I are 79 years old, retired, healthy and still living in our home. We have no mortgage and no debt … and draw only the minimum required annual disbursement. These funds are used for repairs and upgrades to our home, the purchase of a car, etc. We usually have a minimum of about $10,000 in cash available at any given time. My husband works part time, which becomes spare income for personal spending.

In contemplating the sale of our home, valued at about $215,000, we are leaning toward purchasing a townhouse or condominium rather than renting. If we were to purchase another dwelling of similar cost to the value of our home, we would have the option of obtaining a reverse mortgage should we need additional funds to live on sometime in the future. What do you think?

Janice

A: The issue you raise is increasingly important. The housing wealth among older Americans is an estimated $3 trillion. With people living longer and returns to retirement savings uncertain, more people will look at their homes for income later in life. The two main methods for tapping into home equity in the elder years are downsizing and a reverse mortgage.

In general, I've long favored downsizing. Larger homes cost significantly more to maintain, and they come with higher insurance levies and property taxes. The savings from running a smaller home compound over time. With downsizing, it pays to purchase a cheaper home and invest the savings for later. (People can also downsize into renting, but since you don't want to do that I'll stick to buying.) Small is beautiful.

A reverse mortgage allows homeowners 62 years or older to stay in their home by turning their home equity into income. Money can be taken as a lump sum (up to 60 percent of the total amount borrowed in the first year), a line of credit or on a regular payment schedule. The homeowner doesn't make any repayments until the house is sold (typically after death). How much you can get from the reverse mortgage depends on the home's value, average mortgage interest rates and your age. The reverse mortgage is best for people who own their home outright. There are no restrictions on how the money is used. The homeowner is responsible for the taxes and insurance on the property. The most popular reverse mortgage is the government's Home Equity Conversion Mortgages (HECM).

I haven't been a fan of reverse mortgages. The drawbacks have been daunting. These are complex loans. Fees were steep. People lost their homes when they couldn't keep up on tax and insurance payments. Aggressive salespeople pushed reverse mortgages on financially vulnerable people.

The good news is that reverse mortgages are worth another look following a series of reforms. It's still a complex product that needs careful evaluation. Still, fees have come down. Lenders are required to ensure that customers have paid their bills so they won't lose the home. The lump-sum payment option has been limited so people don't spend all the money right away. Among those making the case for revisiting the reserve mortgage option is Alicia Munnell, the highly respected director of the Center for Retirement Research at Boston College.

As to the specifics of your question, you seem in good financial health. What I wonder is if you can find a cheaper home to downsize into, you could put the equity into savings. If you find a couple of years from now that a reverse mortgage would still help you can always take one out on the smaller equity base. It's a strategy to consider.