Reverse mortgages are a useful financial tool for anyone over 62. Use it improperly, though, and you could seriously injure yourself.

If you cannot meet your mortgage or tax payments due to sudden medical expenses or the rising cost of living, a reverse mortgage can keep you out of foreclosure and save your house. It can keep you at a dignified standard of living and close to friends and family.

"We do a lot of counseling," says Don Girogio, the president of United Northern Mortgage Brokers. "And within our counseling, if we feel like someone shouldn't be doing a reverse mortgage, we won't take the application. It's not for us to judge them, but at the same time, we're not going to be part of a situation that could potentially wipe them out."

Unfortunately, a reverse mortgage is basically a no doc loan, meaning that a person does not have to provide any documents (income, medical bills, etc.) that would demonstrate a need. If a person is persistent enough, they can probably find someone who will take their application.

Here are three examples of dangerous reasons to get a reverse mortgage:

1) You are financially secure but bored: If you have enough money to live comfortably and all of your bills are paid, you probably don't need a reverse mortgage. If you just want one to have extra spending money, you should honestly ask yourself if you plan to use this money for constructive purposes or if you just plan to blow through it. And if you do plan to go on a spending spree, what happens if you outlive the loan and end up without a house?

2) You want to make an investment: Taking out a reverse mortgage to make an investment is not a good idea. First of all, your house is your investment, and it has already paid off! Use that money for something that you need right now, like bills. It's not worth it to risk what you already have on an investment that could very well wipe you out.

3) You want to give the money to family members: It's nice to be able to give assistance to family in need. However, if you are in a position where you need to take out a reverse mortgage to help other people out, then you are probably the one in need. Don't let anyone pressure you into whittling away the equity in your home. If they need it that badly, they'll find another way. Giving that money away is just going to make things more difficult for you down the road.

If you are just toying with the idea of a reverse mortgage because you have some pie-in-the-sky scheme to make more money, or you just want to have some fun, you should probably wait. Think of a reverse mortgage as an insurance policy. You never know what's going to happen in the near future and you may just need it for a financial or medical emergency a few years down the road!

Published on February 18, 2011