I’ve always loved the quote from British novelist Angela Carter, who wrote: “Home is where your heart is.”

But I have another twist on that sentiment. Today, our homes aren’t just where our hearts are. Our homes are where our money is.

Without a doubt, an increasing number of homeowners are using the equity in their abodes — that is, the portion of their home value that belongs to them and not the lender — as piggy banks.

Got credit card trouble? No worries. You can borrow against your home to pay for that closet full of clothes.

Can’t afford your child’s college education? No problem. Shake some cash out of your homestead.

And now, seniors are increasingly using their home to borrow money through reverse mortgages.

How it works

I’m always cautious in my advice to folks who want to use their home to borrow money. However, I think a reverse mortgage — even as complex as it is — is worth a look if you’re elderly and have little in the way of savings or investments.

With a reverse mortgage, the lender sends the borrower a check instead of the other way around in a traditional home loan.

Under the rules for a reverse mortgage, homeowners 62 or older can use their paid-off home (or nearly paid-for house) to get a lump sum of money, a credit line, a monthly check or a combination of both. And the borrower gets the money without having to sell or give up title.

Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

And the best feature of a reverse mortgage: The loan doesn’t have to be repaid until you move, sell or die. So there are no monthly payments to worry about.

Sounds good, doesn’t it?

So good, in fact, that the National Reverse Mortgage Lenders Assn. recently reported that the volume of federally-insured reverse mortgages — called “Home Equity Conversion Mortgages” or HECM — from October 2003 through January 2004 increased by 76 percent over the same four-month period a year ago.

“The report doesn’t surprise me,” said Don Redfoot, a senior policy adviser in AARP’s Public Policy Institute. “I’ve seen the volume really take off partly because of the state of the economy.”

For many seniors, a reverse mortgage can be a saving grace.

Questions to consider

However, this product has high upfront costs, so Redfoot said that seniors need to ask themselves these three basic questions before considering a reverse mortgage:

l Would it be better to sell and move? This is an option that shouldn’t be ignored, Redfoot said. Of course you would have to weigh the cost of buying or renting another place, but at least you get all the equity you’ve built up in your present home. Let’s say your home is worth $200,000 and it’s paid off. Sell and you get all of your $200,000 (minus any real estate fees).

With a reverse mortgage, the amount of money you can borrow depends on your age, the current interest rate and other loan fees. It also takes into account the appraised value of your home or mortgage limits for your area set by the Federal Housing Administration, whichever is less. So, staying with the $200,000 example, let’s suppose you are 62 and live in Prince George’s County, Md. You could qualify for a lump sum or credit line of just over $114,000, or a monthly payment of $615, according to AARP’s reverse mortgage calculator. If you wait until you’re 75, you could get more money — $134,000 or $842 a month.

But under any reverse mortgage scenario, you never pull out as much money as you could get just by selling your home. To get an estimate of how much you might get in a reverse mortgage go to www.rmaarp.com.

l How long do you plan to live in your home? A reverse mortgage works best if you plan to stay in your home for a long time. The longer you stay the less expensive the loan is because the upfront fees are so high. In the example I just mentioned, the lender fees, mortgage insurance, closing costs and other fees could run you more than $15,000. Although much of that cost can be rolled into the loan, it’s still a lot of money.

l How important is it for you to leave any equity in your home to your heirs? Keep in mind that with a reverse mortgage, your loan balance rises over time because interest is added to the outstanding loan balance. Unless your home’s value increases greatly, there may not be much equity to leave to anyone.

More information

Once you answer these questions and it appears that a reverse mortgage is right for you, it’s time to get more information.

Seniors applying for the federally-insured loans must go through independent counseling, but even with that requirement, I highly recommend the reverse mortgage section on AARP’s Web site (www.aarp.org/revmort). If you don’t have access to a computer, order AARP’s “Home Made Money: A Consumer’s Guide to Reverse Mortgages.” To order a complimentary copy of the guide call (888) 687-2277.

So, if you’re 62 or older and you find that you’re house rich and cash poor, a reverse mortgage may in fact help reverse your financial misfortune.