Where can seniors find additional cash to live a little more comfortably, fund long term care needs, or pass on to heirs? Interest rates on bonds, CDs and savings accounts are ridiculously low enough to make you wonder why they even bother to invest, while health care costs are steadily increasing. Stock dividends make many people uncomfortable.

One idea would be to sell the family home, find a less expensive place to live and reinvest the proceeds for more income. But this is a tough decision. It may involve moving away from family and friends, especially when the smaller living spaces in the area, like townhouses or condos, are incredibly expensive.

There's an emotional factor, too: how many people can easily part with the house both they and their children lived in for many years? If their vision has been for their home to stay in the family when they are gone, it becomes nearly impossible to sell it.

Fortunately, there is a way for seniors to keep their homes and use them to supplement their retirement income. With a reverse mortgage, homeowners can convert the equity in their homes into cash that they can use for any purpose they choose.

How Does a Reverse Mortgage Work?

Reverse mortgage borrowers make no payments during the life of the loan, but the total amount borrowed becomes repayable with interest when the last living borrower either dies, sells the home or moves out of the home permanently. All reverse mortgages are "non-recourse" loans. This means that the borrowers (or their heirs) can never owe more than the value of the home, regardless of the loan balance.

Cash can be taken in a single lump sum, on a line of credit basis, in regular monthly payments or in any combination of these options. Each withdrawal or payment received by the borrower increases the mortgage balance, which is the reverse of a conventional mortgage in which the borrower makes payments that reduce the mortgage balance. To be eligible for a reverse mortgage, all owners of the home must apply and be at least 62 years of age and using the home as their primary residence.

State and local governments usually offer the least expensive loans, but most stipulate that the proceeds must be used for specific purposes, such as paying for home repairs or property taxes. Some private institutions, such as banks, mortgage companies and savings associations, offer reverse mortgages that can be used for any purpose, but these involve higher administrative costs.

How Much Money Can I Borrow?

The amount of cash you can get from a reverse mortgage generally depends on your age, your home's value, location and the cost of the loan. The largest cash amounts typically go to the oldest borrowers living in the most expensive homes. To get an idea of how much money a reverse mortgage might provide, I used a sample couple, both 73 years young.

Their home is valued at $350,000 with no mortgage. Different agencies and banks will calculate the cash available differently, but an FHA/HUD loan will provide a $144,994 lump sum, a $144,994 line of credit or $939 per month. This is only an estimate and only one way to calculate it. Your loan balance may be different.

The process of applying for a reverse mortgage differs somewhat from a conventional mortgage. To ensure that the prospective borrower understands how the reverse mortgage process works, they must meet with a HUD-approved counseling agency. This counseling is mandatory, regardless of which reverse mortgage product a borrower chooses.

Meetings are usually face-to-face, although telephone counseling is becoming more common. The counselor provides supplemental information on reverse mortgages, determines whether the borrower is eligible to get a reverse mortgage and discusses other options that may be available to the borrower to assist them with their daily living.

Once the counseling meeting has taken place, the process then resembles a conventional mortgage application with the obligatory appraisal, title work, lien payoffs and so on. If the homeowner decides to sell the home, the outstanding loan balance becomes due and payable. The homeowner or their estate will receive any proceeds exceeding the loan balance.

While reverse mortgages are not for everyone, they certainly are worth consideration if you need additional cash, want to pass more money on to heirs, have little or no mortgage on your home and do not want to sell.

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Alan Friedlander owns a financial services practice in Lake County, IL. For your free financial or mortgage review, he can be reached at 847-855-4888 or at alfriedlander@yahoo.com