By Brian O’Connell
With cash-strapped retirees hindered by weak stock, IRA and annuity investment performance, more are turning to reverse mortgages to get some much-needed money.

Reverse mortgages enable struggling homeowners, particularly senior citizens with more equity in their homes, to tap into their home’s value with no tax penalty. Though restricted to homeowners age 62 and over, reverse mortgage payments can come in a variety of flavors -- lump sum, monthly or even via a line of credit payout.

Low credit scores aren’t an issue with reverse mortgages, but they do often come with high fees. Perhaps the most appealing notion about reverse mortgages is that you don’t have to pay back the money until you sell your home or, die while living in it.

Other benefits from a reverse mortgage include:

• No monthly payments on your home.
• The title of the home remains in the possession of the homeowner and not the reverse mortgage lender
• The home’s remaining equity still belongs to the homeowner
• Because reverse mortgages are considered “non-recourse” loans, the homeowner can never owe more than the home is actually worth – even if the loan amount is more than the estimated value of the home.

So, sounds like a good deal, right? But wait, it’s not all cut and dry. If you want to hang on to your home and either sell it, or leave it to your kids, reverse mortgages actually set you back, as they can deplete the home’s equity value.

Some other potential drawbacks to reverse mortgages include:

• Application, monthly payment, management fees, closing costs (including escrow and title fees), and potential mortgage insurance costs. The lenders require insurance premiums to be paid so their investment in your home is protected if your home ever becomes worth less than the loan.
• Many of the loans are based on adjustable rate mortgages, so your loan amount can add up as the rate adjusts over time.
• Lenders won’t do business with homeowners who don’t have a low mortgage balance.
• According to the U.S. Department of Housing and Urban Development (HUD), there have been reports about predatory lenders preying on senior citizens, using reverse mortgages as bait.

If you’re in the market for a reverse mortgage, your best bet may be to go through the federal government. Uncle Sam offers a fully-insured reverse mortgage called a Home Equity Conversion Mortgage.

To fund a list of reverse mortgage lenders in your area, visit the HUD web site.

For more advice on reverse mortgages, visit the HUD Housing Counselor section of the site.

If you’re a senior who owns a home with a low mortgage payment, and you need some cash, a reverse mortgage could work, but just make sure you do your homework first.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.