As a result of the dual housing and economic crises, reverse mortgages are being marketed to seniors with renewed vigor. For those that have fallen behind on their mortgage but would like to remain in their respective homes, goes the sales pitch, Why not obtain a reverse mortgage and avoid default? For those whose mortgages are already paid off, goes another pitch, Why not obtain a reverse mortgage for the benefit of having extra cash?

Let’s examine both of these pitches in greater detail. First of all, the idea of using a reverse mortgage to pay off an existing mortgage is nothing new, and was conceived well before the inception of the housing crisis. However, given that more and more borrowers are having trouble staying currency on their primary mortgages, the idea of eliminating one’s mortgage is now more appealing than ever.

To be sure, this is a perfectly valid use for a reverse mortgage. Prospective borrowers need to bear in mind, however, that the majority of the proceeds will be used to pay off their primary mortgages and there will probably be little, if any funds leftover for discretionary spending. Borrowers availing themselves of reverse mortgages for this purpose, then, should make sure that they have adequate savings to support themselves.

The second pitch – using a reverse mortgage to support oneself (temporarily) because of economic hardship – is also justifiable, but also carries certain risks. This idea will probably appeal to prospective borrowers that are “house rich, cash poor.” These borrowers probably have very little primary mortgage debt but otherwise have marginal financial positions. For them, the reverse mortgage represents a source of income and a way to pad one’s savings account.

The risk of such a strategy is that one’s financial position will never improve, in which case the borrower will find himself in the unenviable position of depending entirely on a reverse mortgage for financial support. Once all of the proceeds are spent, the borrower will have to sell the home anyway. Unfortunately, by the time that point comes, much of the borrower’s home equity will probably have been depleted.

In short, reverse mortgages can provide invaluable support to those facing economic hardship. Just make sure that you understand the risks, and that you plan for life after the reverse mortgage.