Q. What is a reverse mortgage and should I get one?

A. A reverse mortgage is a loan against the equity in your home. It may be right for you if you are at least 62 years old and have a lot of equity. If you qualify, you can convert that equity into cash, monthly payments or a credit line. It works best for seniors who are house rich and cash poor.

Reverse mortgages, as the name implies, are essentially the opposite of traditional mortgages. A finance company will lend you money and your home will serve as collateral.

But unlike other loans, the borrower doesn't have to pay anything back during the life of the loan. The principal, along with accumulated interest, is due when the last surviving borrower dies or moves from the residence permanently.

At that time the borrower or heirs can sell the home to pay back the loan. Your heirs don't necessarily have to sell the home. They could refinance the reverse mortgage and keep the home.

Lenders who issue reverse mortgages can't foreclose on the mortgage unless borrowers fail to pay property taxes or insure the home.

"It's the best thing since peanut butter," said Nick Czar, 88, a Foster Village resident who took out a reverse mortgage in 1995 to pay off an existing home loan and get some money for a business. Czar said he bought his three-bedroom home 55 years ago for roughly $30,000. It's now worth at least $600,000, he said.

"You're still going to be living in your home and live there until you die," he said.

The mortgages are a niche loan product that are gaining in popularity in Hawai'i, said Percy Ihara, a Honolulu-based mortgage specialist for Financial Freedom Senior Funding Corp., a reverse-mortgage lender owned by Pasadena, Calif.-based IndyMac Bancorp Inc.

"It's a product that's not for everyone," Ihara said. Yet, "You have properties people bought for $50,000 that now are worth $1 million. They've got a lot of equity built up."

For example, a 65-year-old married couple owning an average Honolulu home worth $615,000 could qualify for a federally insured reverse mortgage that gives borrowers a credit line of $262,068, according to a reverse mortgage calculator on AARP's Web site.

The case above is only an estimate and assumes the couple has no existing mortgage payments. Each borrower's circumstances vary depending on a borrower's finances and situation, Ihara said.

The loans are limited to homeowners at least 62 who have a substantial amount of equity in their homes — i.e., either they own their home outright or the value of the home is much more than what they owe under an existing mortgage.

Factors affecting how much you can receive include your age, the amount of equity, and current interest rates. The older you are the larger the reverse mortgage can be. If the couple mentioned above were 75 years old, the credit line available to them is estimated at $305,335.

Generally people with reverse mortgages can receive the money in the form of a credit line, monthly payments, a lump-sum payment or mix of the three, according an online primer on reverse mortgages from the AARP.

The loans also differ from traditional mortgages in that they generally carry higher closing costs because of the amounts and lender risks involved. What's owed under the loan rises during the life of the loan unless the borrower decides to pay it off.

In an example provided by Financial Freedom, a 70-year-old homeowner in a house worth $500,000 could borrow $288,000 and finance closing fees of $21,593. At the end of 10 years the borrower would owe $567,349 in accrued interest, service fees, insurance premiums and principal assuming a 5.97 percent interest rate.

The home's value would also appreciate during that period to $740,122 if it increased 4 percent a year. Equity in the home at that time would be $172,774, according to the projection.

If the borrower lived to 100, the amount owed under the mortgage would increase to $1.88 million, or more than the estimated $1.62 million value of the home at that time.

Rules on the mortgages are such that the lender wouldn't be able to collect more than what the home is worth if the borrower died at that time, Ihara said. Nor can a lender foreclose against the home if the loan value balloons above the residence's value, he said.

Understanding those intricacies are one reason why reverse-mortgage applicants are required to go through counseling. The Legal Aid Society of Hawai'i provides such sessions, said Ryker Wada, Legal Aid Society consumer unit supervisor.

"We want them to know what they are getting into before they get into it," Wada said. Hale Mahaolu Homeownership/Housing Counseling on Maui and a Mainland-based counselor are also approved by the U.S. Department of Housing and Urban Development to provide the sessions to people seeking federally insured reverse mortgages.

"Most of the clients that try and get it are generally people who are equity rich but are on a fixed income," Wada said. That includes people looking to get out from under existing mortgage payments of $1,000 or more a month that are eating into Social Security payments.

Wada said about 60 percent or 70 percent of the people receiving the counseling decide to get the mortgages. Ihara said some applicants drop out of the process when they learn they won't be able to leave their home debt-free to their children.

Just like a regular mortgage, there can be problems if a borrower fails to meet certain loan conditions. A reverse-mortgage lender can require accelerated repayment of the loan under certain conditions, including failure by the homeowner to pay taxes or insure the property.