hen you hear the term "house poor," it brings to mind the young couple who spent every penny on their first home and have nothing left for furniture, much less going out to dinner. Increasingly, however, "house poor" applies to retirees, as the value of their homes has soared and real estate makes up a larger and larger percentage of their assets.

There is a big problem with home equity, however: It doesn't pay the bills. One possible solution is a reverse mortgage.

Once you hit retirement, savings will most likely be used first for living expenses, not retirement plans. At some point, the only asset left might be your house. What happens if you need the home equity to live on, but want to stay in your home? This is a major issue now, and it will become even more so as baby boomers age and realize they haven't saved nearly enough for their later years.

A reverse mortgage (also called a "home equity conversion plan") is exactly what the name implies. With a regular mortgage, the homeowner starts out with the debt and makes monthly payments of both interest and principal until the mortgage is paid off. In this case, the homeowner ends up with all the equity in the form of the house.

With a reverse mortgage, the opposite is true. The homeowner is paid a monthly income (or can draw down from a home equity line of credit), but each payment reduces the homeowner's equity until the house is actually owned by the lender.

Typically what happens is that the owner(s) dies before the lender becomes the outright owner. In that case, the house is sold at the owner's death to repay the loan. It also could be sold prior to that if the owner moves into a relative's house or a nursing home.

Using up equity can be a frightening experience, so it is a relief to know that the owner can continue to own the home, only being obligated to pay real estate taxes, insurance premiums and regular maintenance.

You might think of taking out a regular home equity loan instead of using a reverse mortgage. But once you retire, you may not have enough income to qualify for the home equity loan. The beauty of the reverse mortgage is that you don't have to have substantial income to qualify and if you live in the home long enough, you can get monthly payments long after the equity in your house has been used up. Even better, if there is no equity left, the lenders can't go after your estate for their shortfall to cover their losses. In essence, think of a reverse mortgage as an annuity.

The amount of a reverse mortgage that you can obtain depends upon the program you use - Federal Housing Administration insured, or Federal National Mortgage Association (Fannie Mae) reverse mortgages. The Federal Housing Administration's program is called the Home Equity Conversion Mortgage (HECM), while the Federal National Mortgage Association's (Fannie Mae) basic reverse mortgage program is called Home Keeper.

The amount of income depends upon the age of the homeowner, the value of the home and the prevailing interest rate at the time of closing on the loan. A couple will get a lower monthly income than a single homeowner, because one is likely to outlive the other by several years. Both the FHA and Fannie Mae require borrowers to attend informational sessions explaining the program before the deal is completed.

Some states have publicly funded programs for low-income residents, but most reverse mortgages are private. A truly private reverse mortgage depends only on the financial stability of the institution involved, so non-government insured mortgages should be approached with caution. However, low-income people can get reverse mortgages in the private sector. The FHA insures private sector reverse mortgages, for example. The disadvantage is that the amount you can borrow is limited to the FHA borrowing limits in your geographic area. These limits are much lower than those insured through Fannie Mae.

Reverse mortgages have upfront costs that can't be dodged. If you're planning to leave your home to your heirs, this could be a serious impediment. The upfront costs vary according to your situation, but Fannie Mae says that they run about the same as those of a traditional mortgage. The costs include origination fees and insurance premiums. A reverse mortgage is probably not worth the upfront costs if you plan to move within the next few years.

Reverse mortgages are not the panacea for every elderly person who wants to stay in his or her home. If you want to keep your house in the family to pass down to your children, you're not a good candidate for a reverse mortgage.

However, as reverse mortgages gain in popularity, competition means that better deals will be offered to consumers. If a retiree goes into the deal with eyes wide open, fully understanding that he'll eventually lose most or all of his home, reverse mortgages can be the answer. They may also be the solution for someone who wants to remain in familiar surroundings with memories of loved ones, or even for caregivers who want to care for their elderly relatives at home instead of moving the retiree into a nursing home.

Most importantly, retirees needing additional monthly income won't be forced to sell what is often their most prized possession - their homes.