Reverse mortgages allow people to use the equity in their home without having to pay the loan back as long as they live there. "It's extra availability," says Ray Rueby, a Rochester, New York homeowner. "If I wanted to go to Europe for a month or two or if I got a tax bill at an awkward time, I just know I can write a check and not suffer any loss in my net worth."

But reverse mortgages aren't right for everyone. They're complicated, expensive and final -- take one, and your heirs will have to sell your house when you pass away or come up with the cash to keep it.

"You have to make sure you understand all the costs and alternatives," says Ken Scholen, director of the AARP Foundation's reverse mortgage education project.

Here's a guide.

1. The Basics

A reverse mortgage is the opposite of a regular mortgage: Instead of using your income to build home equity, you use your home equity to get income. With a reverse mortgage, you remain the title owner, and you don't make payments on the loan as long as you live there. The loan, along with the interest accrued, becomes due when you -- and any other owner, such as your spouse -- move or pass away.

To qualify for a reverse mortgage, you and any other owners must be at least 62 years old. You also must own the home outright, or be able to pay off any remaining balance with the money from the reverse mortgage. And you must keep the house in good condition and pay your taxes and insurance, or the loan will be considered in default.

Just how much you'll be able to borrow depends on three things: your age, your home's value and interest rates. The older you are, the more your home is worth; the lower interest rates are when you apply for the loan, the more equity you can borrow. The National Reverse Mortgage Lenders Association's (NRMLA) reverse mortgage calculator can help you see how much you can get.

Interest rates are factored in because all reverse mortgages accrue interest over the life of the loan, even though interest isn't paid off until the loan becomes due, explains Peter Bell, NRMLA director. The interest rate is pegged to the one-year Treasury bill and adjusts annually or monthly or to the London Interbank Offered Rate (LIBOR), whichever the borrower chooses. (Since annual adjustments provide more stability, annual rates are higher -- and less popular among borrowers -- than monthly rates, says Bell.)

What happens when the loan comes due? Contrary to what many people think, the lender doesn't take your house automatically, says Bell. True, your heirs may sell the home in order to pay the balance off if you pass away. But they could decide to keep the house if they can come up with the cash to pay off the loan.

If the house is worth less than the amount due, you or your heirs will owe to the lender only what the house can sell for. If it is worth more than the amount due, you or your heirs get to keep the difference.

2. Choosing a Product

The most common is the home equity conversion mortgage, or HECM, which is insured by the Federal Housing Administration (FHA), an arm of the Department of Housing and Urban Development (HUD). HECMs make up about 98% of all reverse mortgages in the country, according to the NRMLA. The FHA imposes a $625,500 limit on HECM.

HECMs are available through roughly 2000 lenders around the country, according to Bell, ranging from small local companies to big lenders like Wells Fargo. Unlike the terms of regular mortgages, which vary by lender, reverse-mortgage terms are set by HUD. The only variable is the origination fees charged by the lender.

3. Choosing a Payout Schedule

Reverse-mortgage payouts come in three forms. You can take a one-time lump-sum payment, establish a credit line and draw on it as needed, or set up an annuity-like fixed monthly payment schedule for the life of the loan or for a set number of years. Alternatively, you can do a combination of the three, explains Bell. (For example, you might set up half as an annuity, take out 25% as a lump-sum payment and set up the rest as a credit line.) At any point, you can switch between options for a small fee of around $25, Bell says. In either case, income from a reverse mortgage is tax free.

All three options have advantages and disadvantages. A lump-sum payout will put a lot of money in your hands, but you'll accrue more interest since you'll have a larger loan for a longer period of time. In addition, it might affect your Medicaid eligibility if you don't spend the money right away, Bell explains. Yet, it may be a smart strategy for retirees who still owe money on their regular mortgage, suggests the AARP's Scholen. Taking a lump-sum reverse mortgage payout to pay off their balance will eliminate their monthly mortgage payments.

An annuity-like structure can ensure income for life, but payments aren't protected against inflation. And if you don't spend the money each month, you might also lose Medicaid eligibility if the additional assets push you over the imposed limits.

The most advantageous option for most retirees is the credit line: You draw on the money when you need it and accrue interest only on the balance. At the same time, credit availability increases each year.

4. Costs

Reverse mortgages are expensive. You can expect to pay anywhere from 6% to 8% of your home's value at the time of loan origination (or the FHA limit, if lower). Of that, 2% goes to HUD for insuring the mortgage, another 2% (or less, in a competitive marketplace) goes to the lender and the remainder goes toward title fees, appraisal fees and other closing costs. Fees are typically rolled into the mortgage and will simply decrease the amount of your total payout or credit availability. (Some closing costs may be due out-of-pocket.)

"If you intend to stay in your home for only a short period of time, you have to ask yourself if the fees are worth it" says AARP's Scholen. You might be better off exploring alternatives, such as selling the house sooner or taking a home equity loan and paying it off when you sell, Scholen explains. If you're considering a reverse mortgage because you need the money, look for alternative sources of income. For example, if you need the money to pay your property taxes, your state might have a government lending program to help cover the bill, Scholen explains.

Since these are all complicated decisions with serious consequences, all retirees are required to go through special counseling before taking on a reverse mortgage. For a list of approved agencies in your area, click here or call your local AARP chapter.