Pull cash out of your house.

Reverse mortgages provide income to cash-strapped seniors

"They call us the `sandwich' generation. We have financial responsibilities to our children and our parents. How are we supposed to meet both demands and still have something left over for ourselves?" asks Peter Bell, president of the Washington, D.C.-based National Reverse Mortgage Lenders Association.

Well, one way to help ensure that your parents remain financially secure is to seek a reverse mortgage. A reverse mortgage is a loan that you (or your parents) do not repay. Well, that may be an overstatement, but in general it works like this. Homeowners (at least 62 years of age) can cash in on the equity they've built into their home, collecting up to 55% of its value in tax-free cash. The money can then be used for travel, debt payment, to help children buy a home, or even to finance a grandchild's education. The cash is disbursed in one of five ways:

* A single lump sum 

* Equal monthly payments for as long as you live in the house

* Equal monthly payments for a set period of time

* A line of credit

* A combination of monthly payments and a line of credit.

Don't confuse reverse mortgages with traditional home equity loans. Home equity loans require immediate monthly payments to the lender. Indeed, with a reverse mortgage, you are doing the reverse. The lender is paying you from the equity and redeeming its cut on the back end when you sell the property. In addition to the basic interest the lender charges--which is a variable rate, currently as much as 8%--the lender is banking on the home's future value increasing to recoup the money loaned against the equity. If the house's value declines, the lender will have to write off any short-term losses.

If that's not appealing enough, consider these additional points of a reverse mortgage:

The homeowner retains ownership of the house, unlike equity lines. Some or all of your equity converts into cash, you decide how much. If you choose a line of credit, interest does not accrue on the principal, but rather on the amount of your annual usage. It's tax free. "A reverse mortgage is an excellent financial planning tool. It offers great flexibility and the opportunity to turn an idle asset, the home equity, into funds that will enhance their lifestyle," adds Bell.

The National Center for Home Equity Conversion, an independent nonprofit organization in St. Paul, Minnesota, offers this example: Say your parents want to supplement their pensions and Social Security with a reverse mortgage. If the house is worth $260,000, a borrower could receive $69,476 from the Federal Housing Administration's program, $76,898 from an independent lender like Financial Freedom, or $95,202 from Fannie Mae. Each option offers a nice cushion for the cash-strapped or anyone who does not want to be in dire financial straits.

Repayment of the loan occurs after the surviving borrower's death, sale of the house, or if the borrower vacates the property for 12 consecutive months. The loan is usually paid off through the sale of the house. All remaining proceeds go to the estate. Of course, by spending the capital now, there will be less money for heirs, but for many Americans making up the "sandwich generation," it's a fair exchange for their parents' comfy retirement.

To get more information about reverse mortgages, send for a free copy of Home Made Money from the AARP Home Equity Information Center, Consumer Affairs Division, 601 E St. N.W., Washington D.C. 20049 or go to www .aarp.org/revmort/aarpresource.html.