Lynn O'Shaughnessy

When Americans try to figure out their net worth, they often find that their biggest chunk of wealth isn't stashed in a bank or a brokerage account. For many of us, our true wealth can be found in our porcelain sinks, wallpapered bedrooms, outdated kitchens and scuffed hardwood floors. Our homes, particularly in states like California, New York and Florida, are often our most valuable asset.

Knowing that a house has turned into a personal cash register can be comforting. But at the same time, plenty of homeowners become frustrated because the cash value of their homes may seem as accessible as the gold bars stored at Fort Knox.

Traditionally, you faced two alternatives if you needed to mine your home-equity gold. You could box up a lifetime accumulation of stuff and sell the family house. Or you could extract cash through a home equity loan.

If you flinch at either of these options, it's only natural. You may be unwilling to leave behind the place where your children celebrated every birthday and lost their first teeth. And if you take out a loan, the lender will expect regular payments, which could be difficult if your cash flow resembles a dried-up creek bed.

An increasing number of Americans, however, are now turning to Plan C. These folks are withdrawing money from their homes without worrying about paying it back. And the borrowers get to remain in their homes.

You can pull off this feat by obtaining a reverse mortgage.

With one of these mortgages, you can extract equity out of your home and the withdrawals won't have to be repaid until you sell your house, move out of your residence permanently, or die.

Reverse mortgages aren't available to just anybody. You have to be at least 62 years old to qualify. For couples, both spouses need to meet the age requirement. So if a husband's 68 and the wife just turned 61, the deal's off, at least for a year.

On the other hand, you may be eligible for a reverse mortgage even if you're still a slave to those monthly mortgage payments. You'd have to use cash from the reverse mortgage, however, to pay off your original lender.

In the past, reverse mortgages rightly deserved a rather shaky reputation. The payouts were poor and the fees were outrageous.

But you can credit the Federal Housing Administration for giving the reverse mortgage an extreme makeover. The FHA now insures about 90 percent of all reverse mortgages through what's called Home Equity Conversion Mortgage, or HECM, loans.

Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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