A reverse mortgage can provide greater financial security or enhance your lifestyle--or it can be a disastrous financial move. Ask yourself these five questions before proceeding with a reverse mortgage.

Is a Reverse Mortgage the Right Move or a Raw Deal? Five Questions to Ask

A December 2007 study by AARP found that about 90% of seniors polled were satisfied with their decision to get a reverse mortgage. That's great, but it also means that about 10% of seniors surveyed feel that they made a mistake when they decided to take out a reverse mortgage. Ask yourself these five questions, and you'll have a much better chance of making the right decision--for yourself or to help a senior you know.

Reverse Mortgages: Five Questions

Take out a home equity loan, which is the cheapest option if you can make the monthly payments. This is usually the best choice if you don't need a large amount of cash.

Take out a reverse mortgage, which can provide a lump-sum payout, a line of credit, or monthly payments to you. It's more expensive, but no payments are required, so your credit or income is not an issue. For many seniors who need cash and have limited income or bad credit, it's the only option.

If you want to downsize or move, you have to sell. But you can use a reverse mortgage on the new home to avoid paying cash and depleting your resources--you keep more of your money, get a new home, and have no mortgage payments. If you have substantial liquid assets, you'd probably prefer to just pay cash and save the reverse mortgage costs.

2 .How Is My Health? Like all mortgages, reverse mortgages have some steep upfront costs. If they are spread over many years, this matters less. But if poor health forces you to move from your home early, a reverse mortgage becomes more expensive.

3. How Is My Credit? If you have credit problems or limited income, selling your home or taking a reverse mortgage may be your only options. Lenders are increasingly leery of underwriting traditional mortgages to people with less than perfect credit, and mortgage laws being debated forbid lenders from making loans unless the borrowers have enough income to repay the mortgage.

4. What Is My Income? If your income is very low, and you need money for repairs to your home or to pay property taxes, you may qualify for special-purpose reverse mortgages. These are administered by local governments or community organizations, come with low or no fees, and charge little or no interest. If your income is low enough that you qualify for government assistance, taking the proceeds of a reverse mortgage as a lump-sum could disqualify you for certain programs. A HUD reverse mortgage counselor can help you choose the right way to take the proceeds of your loan without affecting your program eligibility.

5. What Are My Plans? If you want to use a reverse mortgage to fund a two-year jaunt around the world, check your paperwork--reverse mortgages become due when you stop living in your home, and lenders have different ways of defining "living in your home." Make sure that taking a long trip or having an extended hospital stay won't force you into foreclosure.

Reverse mortgages can be a painless way to get cash out of your home, feel more secure financially, and enjoy retired life a bit more. Asking yourself these five questions and discussing the answers with a reverse mortgage counselor can help you decide if the reverse mortgage is the right idea.