Reverse mortgages costly, but a way to avoid moving

Q Reverse mortgages were a big rage about a year ago. Is it not a good deal any more because of the drop in home prices? What are your views?

GORDON

A Reverse mortgage sales are on track to hit a record this year. I'm not a big fan of them, although I'm glad they exist and am confident they'll improve.

The main advantage of a reverse mortgage is that the homeowner gets access to the home's equity without moving. A reverse mortgage lets anyone 62 or older borrow against a home's value. A homeowner makes no repayment until the house is sold (typically after death).

Money can be taken as a lump sum, a line of credit or regular payments. If you want to stay in your home -- and are struggling to find investments with safe, stable income streams -- you might be tempted to look into reverse mortgages.

There are drawbacks. These are complex loans. How much you can borrow depends not only on regulatory caps, but on your home's value; average mortgage interest rates, and your age.

Loan costs are high. In recent testimony before Congress, a reverse mortgage expert for AARP noted that the recent transaction cost for a 74-year-old in a $300,000 home was about $30,000 -- half in upfront fees and the rest in monthly fees over the loan's duration. That's a lot of money.

Still, a reverse mortgage could be the answer for those who are asset-rich, but need income. For most people, however, it should be a last resort, in essence an insurance policy against running out of money while eager to stay in your home.