Longer life spans. Prescription drug costs. Poor retirement planning. Those are some of the reasons experts say the popularity of the reverse mortgage has climbed dramatically in recent years.
The once little-known loan product allows a homeowner who is 62 or older to borrow against the equity in his house without giving up the title, moving or making monthly payments.
Taken out as a lump sum, fixed monthly payment or line of credit, that money can be used for any reason.
Some use the extra cash to enhance their retirement savings, pay off credit cards, make home repairs or even take vacations, said Darryl Hicks, associate director of the National Reverse Mortgage Lenders Association.
Others are in financial straits and need money for home health care, prescription drugs and other necessities, Hicks said.
Insured by the Federal Housing Administration, Home Equity Conversion Mortgages account for roughly 90 percent of all reverse mortgages.
Lenders issued more than 43,000 of these during the federal fiscal year ending last September, according to the trade group.
That number is expected to reach at least 60,000 this year, Hicks said.
"There are still a lot of people who don't know this program is available," he said.
One major myth surrounding the reverse mortgage is that people think the bank takes the title to the house. Not true, said Mike Maddy, regional reverse sales manager for Wells Fargo.
Another important fact is that the borrower can never owe more than the house is worth, Maddy said.
Nationally, Wells Fargo did roughly 4,200 reverse mortgages worth $673.8 million in 2002. That jumped to about 18,000 loans at $4.11 billion last year.
The reverse mortgage also seems to be gaining steam in Kern County.
In the past year, Wells Fargo's local reverse mortgage office went from doing a couple of loans a month to 25 or 30, said local manager Rudy Berti.
Sherry Witham, director of operations for the Consumer Credit Counseling Service of Kern and Tulare Counties, said she has also seen increased interest. The local service went from two counselors trained on the loans to six or seven in about 18 months, she said.
Before taking out the loans, seniors must receive counseling from a third-party approved by the U.S. Department of Housing and Urban Development.
People often ask, "Is this product real?" Witham said. "They're so hesitant because of scams."
The reverse mortgage can be helpful to those struggling financially, but people need to do their homework first, she said. Talk to family members, financial planners, accountants and other trusted friends.
Also know your needs and make sure you understand a reverse mortgage means you'll have less equity if you do sell the house, Witham said.
Potential borrowers can ask mortgage companies to run projections of how much interest they'll accrue, she said. Budgeting is also crucial.
"You still have to be sure you're prudent with your money," she said. "It's not a license to just go out and spend."
And, experts say, a reverse mortgage may not be right for those planning on staying in a house less than three years because upfront fees, taken out of the loan amount, can be expensive.
Used responsibly, a reverse mortgage can offer peace of mind, Witham said. Some seniors have children who can't help support them, she said. Others just don't want to tell their children they can't afford prescription drugs.
"Self-worth and pride," she said. "I don't know if there's any dollar figure amount you can put on that."