We provide this free financial resource to visitors of the Community Room of SeniorSSuperStoreS in an effort to keep baby boomers, seniors and the elderly informed of matters that can affect their lifestyle.

Most senior citizens have their Social Security to count on during their retirement years, usually supplemented by savings and investments that they have accumulated over the years in anticipation of retirement. But, what happens when the economy slows down, corporate dividends on stocks dwindles and interest rates on savings and CDs drop dramatically? The nest egg you have counted on isn't supporting the lifestyle you expected.

Often, the equity in a retiree's home is significant; maybe it's the largest asset that you own. The opportunity for you to cash in on that home equity by selling your home and moving into a smaller, more efficient, lower maintenance home with less upkeep is tempting. Besides, you can pocket the difference between the sale of the older, larger home and the cost of the smaller, newer home and use that cash to supplement your retirement income.

Inflated real estate values, however, may make this plan not work out too well if the cost of the new home is too close to the sales proceeds of the older home. And, you must qualify for the IRS tax break rules on home sale in order to avoid paying taxes on such a sale and repurchase of a cheaper residence for this plan to make sense.

With all of these risks and potential investment and tax problems, how else can you use the equity in your home to supplement your retirement income? Perhaps you can tap the equity in your home without selling it by using a reverse mortgage.

The reverse mortgage is a way of taking substantial amounts of money out of your home without selling or ever having to make loan payments (as you would with a second mortgage or home equity loan). And, you don't need an income or other assets to qualify.

Basically, a reverse mortgage is a loan that uses the home as collateral, just as a regular mortgage does. The money can be taken in a lump sum, monthly installments, or as a line of credit. There are no income tax or capital gains tax problems. The borrower does not make monthly payments.

The interest rate changes every month or once a year, depending on the loan structure chosen by the borrower. Rates increase and decrease with market interest rates. Usually, there are caps on how low or high the rates can go.

The borrowed amount, or principal, plus accumulated interest (including interest on interest) must be repaid when the owner moves or when the property is sold, before or after the owner's death (although the borrower can repay earlier). The lender cannot require repayment unless the owner sells, moves or dies.

The total debt of principal plus interest can never exceed the value of the home. Thus, a reverse mortgage does not burden you or your estate with any debt beyond that which can be paid by selling the property. When the home is sold, any money remaining after repayment of the debt goes to the homeowner or heirs.

Typically, lenders determine how much can be borrowed by factoring in the interest rate, the homeowner's life expectancy, the market value of the property and the balance of any outstanding liens (mortgages and home equity loans). Generally speaking, the lower the interest rate and the older the property owner, the larger the maximum possible loan.

The market we're experiencing in late 2001 and early 2002, distinguished by lower interest rates and higher home values, work in favor of reverse mortgages. When rates are low, you can get more money out of your home, and there is likely to be more value left in the property when you sell or pass it on to your heirs.

So, is a reverse mortgage a good idea for you? If you're getting up in years, need the cash to maintain your lifestyle, don't care so much about leaving such a large inheritance for your heirs, interest rates are low and you believe that they will remain low for awhile, and your home would be valued fairly high, then yes, a reverse mortgage may be worth your consideration.

If you would like more information about reverse mortgages, you may visit the following: AARP's reverse mortgage web site (or call 1-800-424-3410); or call the U. S. Department of Housing and Urban Development at 1-800-217-6970.