MISSISSIPPI STATE -- Homeowners needing extra cash who turn to a program that basically lets them sell their house over time should seriously look at their financial plan before choosing this option.

Reverse mortgages are a type of loan where owners borrow against the equity in their home while retaining ownership of the house. The amount that can be borrowed against the home depends on factors such as age and the amount of equity in the house.

Dr. Frances Graham, housing specialist with the Mississippi State University Extension Service, said the program is one way to meet expenses and maintain financial independence for the rest of life.

"A house is the most valuable asset most people will ever own, and they need to look at all other ways to liquify assets before considering a reverse mortgage," Graham said.

Money from a reverse mortgage can be used for any purpose, such as living expenses, home improvements and health care.

"Reverse mortgages work much like traditional mortgages, only in reverse," Graham said. "Rather than making a payment to your lender each month, the lender pays you. Since it is a rising debt loan, the interest is added to the principal loan balance each month rather than paid on a current basis. The total amount of interest you owe accumulates significantly with time."

Reverse mortgages are different from home equity loans or lines of credit which require repayment. Depending on the plan, reverse mortgages become due with interest either when the owner permanently moves, sells the home, dies or reaches the end of a preselected loan term.

"The lender does not take title to your home when you die, but your heirs must pay off the loan," Graham said. "The debt is usually repaid by refinancing the loan into a forward mortgage or by using the proceeds from the sale of the home."

Some reverse mortgage interest rates are fixed, others variable, and some plans charge origination fees, closing costs and servicing charges. Insured plans are available for a fee.

To qualify for a reverse mortgage, all applicants must be age 62 or older, and own their home or have a very low mortgage balance. The home must be a single family residence that all applicants occupy as their primary residence. Counseling is required, and applicants receive a certificate showing they have been told of the advantages and disadvantages a reverse mortgage offers.

To get the required counseling over the phone, call the local Housing and Urban Development agency or 1-800-7FANNIE. On the Coast, counseling is available at the Gulf Coast Community Action Agency, (228) 868-4250, or in Jackson at HEED, (601) 981-1960 or the Division of Aging and Adult Services, (601) 359-4366.

"To decide if the reverse mortgage is for you, it is important to evaluate your financial situation, not only where you stand now but also what funds you will need to cover your expense and retain your independence in the years to come," Graham said. "Clearly defined financial goals will help you determine if the reverse mortgage will benefit you."

According to information released online by the Federal Trade Commission, reverse mortgages use up some of the home's equity, leaving fewer assets for the owner and heirs. The legal obligation to pay back the loan is limited by the value of the home at the time the loan is repaid, an amount that can increase if the house's value increases.

Graham said benefits received from a reverse mortgage do not affect Social Security payments or Medicare eligibility. However, it can affect Supplemental Security Income or Medicaid benefits, and applicants should check with these agencies when considering a reverse mortgage.

The only two Mississippi institutions that offer reverse mortgages are Deposit Guaranty Bank and Norwest, a Jackson company. Some other out-of-state institutions offer the service in Mississippi as well.