Not too long ago, life in retirement for Westchester residents Harry and Roxie Blocher just wasn't everything that they had hoped it would be.
Harry Blocher, 77, said they were "barely getting by" on their monthly Social Security checks and a modest pension that he had earned as an electronics engineer with ITT.
Their bills were mounting, their roof needed repairs and their 1977 Datsun "was hardly making it from one place to the next."
Then, last year, the Blochers decided to respond to advertisements for "reverse mortgages"--a relatively new type of loan that usually doesn't have to be repaid until the borrower sells the home or dies.
After comparing various plans, the Blochers chose a reverse-mortgage lender that provided them with enough cash to buy a new car and take a monthlong vacation to Canada.
Under terms of the loan, they also get $498 a month to help meet their expenses--and they won't have to pay back a nickel for as long as they live.
"The money has made a big difference in our lives," Harry Blocher said. "We've been able to restore the standard of living that we lost when I quit working."
Thousands of older Americans like the Blochers are discovering the advantages of reverse mortgages, which are designed especially for house-rich but cash-poor elderly homeowners.
But at the same time, some experts worry that many borrowers might not realize just how expensive the loans can be. And as more reverse-mortgage lenders get into the business, there is concern that fly-by-night operators will take advantage of gullible older people.
"We're sailing into uncharted waters with these loans," said Bronwyn Belling, a housing expert with the American Assn. of Retired Persons. "Reverse mortgages can be a real godsend for some older people, but they're terrible for others.
"The problem is, there's just no hard-and-fast rule that says who should get one and who shouldn't. Everybody's case is different."
Reverse mortgages got their name because they're essentially home loans that work backward.
Rather than a lump sum that must be repaid in monthly installments, the money is advanced in monthly increments of $200, $500 or even more than $1,000--depending on the homeowner's age, cash-flow needs and equity in the house.
Many reverse-mortgage plans will also allow the borrower to get several thousand dollars up front to pay pressing bills or meet other expenses.
Significantly for the cash-strapped homeowner, the money usually doesn't have to be paid back until the term of the loan expires or the borrower sells the house and moves out. If the homeowner dies, the money is repaid by the estate.
An estimated 10,000 to 20,000 reverse-mortgage loans have been made in the United States. More than 20 banks and insurance companies offer reverse mortgages across the country. About half a dozen are active in California.
Some nonprofit groups and cities also offer the offbeat loans, and legislators in Sacramento are working on a bill that would create a special program backed by the state.
Even Uncle Sam has gotten into the act: The Federal Housing Administration launched a program last year to insure as many as 25,000 new reverse mortgages, more than doubling the number of loans in force today.
Not everyone qualifies for a reverse mortgage.
Most lenders won't make the loans to people under the age of 62. They also usually require that the home be paid off or that the loan balance be no more than 10% of the property's appraised value.
Reverse mortgages can be expensive, too. Interest rates are usually at least a point or two higher than rates on conventional loans, in part because the lender typically won't be repaid a dime until the term of the loan is up.
And while some lenders simply charge interest on their monthly advances, others charge interest and demand to share in the home's future appreciation.
"Studies show that nearly 90% of all homeowners want to stay in their home for as long as they're physically and financially able to," said William J. Texido, whose San Francisco-based Providential Home Income Plan is one of California's biggest reverse-mortgage lenders.
"We can't do much about their physical condition, but we can certainly help them on the financial side. A reverse mortgage gives people the chance to 'age in place.' "
People take out reverse mortgages for a variety of reasons. Some want to replace a deceased spouse's Social Security checks or pension payments. Others need some cash because their savings have been drained by medical bills or other large expenses.
Still others take out the loans "because they have more desire than need," said Texido, whose firm has made about 1,000 loans in California. "They want to take some trips, buy a nicer car, help their grandkids out financially or do something else fun with the money."