NEW YORK (CNN/Money) - Glen and Alice Akins have washed their hands of money worries. After retiring several years ago, the Hollywood Hills, Calif. couple sprang for a reverse mortgage, allowing them to tap the extensive equity in their home.

The Akins are among a growing number of retirees to discover the benefits of reverse mortgages, a 'loan' that allows seniors to tap the equity in their home as supplemental income without paying it back.

In essence, they pick up where home equity loans leave off (since banks won't generally lend non-income producing retirees), according to Fritz Elmendorf, chief economist at the Consumer Bankers Association.

"We're both retired on fixed incomes. Our pensions don't go up, so the cost of living was getting to be a bit of a problem as responsibilities like utilities doubled and tripled in size," Alice said.

Over time, the reverse mortgage dishes out the equity in their home, currently worth about $400,000. In their case, it provides a monthly "paycheck" of $700. That's on top of their pensions. Both Glen, 85, and Alice, 79, are veterans of ABC News - he as director of engineering, and she in radio and television.

"Although it's pennies to people who are working today, that extra income each month is like a blessing to us," Alice said. "We can buy extra things, we do a little better on our travels - we've traveled all over the world together. It's given us ease of mind."

Reverse mortgages also are helpful to retirees whose investment portfolios have felt the bite of the bear market.

"We were in the stock market for many years, and we made some money, but it was just too risky after we retired. Several of our friends, especially those who are in the stock market now, are seriously considering a reverse mortgage," Alice said.

They're not the only ones. As of Aug. 2002, 11,827 reverse mortgages on single-family homes have been approved by the Federal Housing Authority, up from 7,793 in all of 2001 and 6,638 in 2000.

A reverse mortgage allows homeowners age 62 or older to convert part of their home equity to tax-free income -- without selling their home, moving out, or making monthly mortgage payments. In most cases, they must own the home outright and the loan is repaid upon seniors "free up" part of their home equity, then receive it in the form of monthly payments, a lump-sum payment, a line of credit, or some combination of the three.

The facts: reverse mortgages • The loan provides tax-free income without having to sell, make monthly payments, or give up title. • The amount repaid can't exceed the home's value when sold. • Borrowers receive funds as a lump sum, monthly payments, a line of credit or some combination. • You must be at least 62 to take out a reverse mortgage.

The extra cash allows retired homeowners to stay in their homes longer, and maintain their standard of living.

The most popular reverse mortgages, available in every state, are Home Equity Conversion Mortgage (HECM) loans, from the feds, and Home Keeper reverse mortgages, from Fannie Mae. A 'jumbo' private reverse mortgage product, the Cash Account Plan, is available from Financial Freedom Senior Funding Corp, in some states only. Other reverse mortgages come from state and local governments.

Interest is repaid to your lender from your remaining home equity when you sell the house and the loan comes due: when the home is sold, or when the borrower (or last surviving spouse) moves out or passes away. The amount due cannot exceed the value of the home when it's sold, even if your home depreciates or so much interest accrues that the amount you tapped plus interest adds up to more than what the house is worth.

Seniors who choose to tap equity through a line of credit only pay interest on the money they actually withdraw, added Jim Mahoney, CEO of Financial Freedom. What's more, you can arrange for a line of credit that earns interest on any money you don't use. Unused home equity earns interest at 5 percent a year using a Cash Account product. HECM lines of credit have variable interest rates.

Of course, reverse mortgages have their drawbacks, too. If you wanted to leave your home, potentially your greatest asset, as an inheritance for your kids, a reverse mortgage will probably make that impossible.

"The pitfall is that there's no equity left for heirs," said Elmendorf. "But if you end up living in the house until you're 100, you've still managed to get a pretty good deal."

Related stories • AARP's Reverse Mortgage Calculator • 5 steps to an elder-friendly home • Did you pay too much for your house? • 30-year mortgage rate dives

Reverse mortgages also can get expensive. You pay four types of fees: the first is the origination fee, which is up to 2 percent of the home's value or the equity limit in your county, whichever is less. You also will pay a mortgage insurance premium, which is 2 percent of the home's value up front, plus half a percent added onto the loan, said Ken Scholen, a spokesperson for AARP.

Then there are third-party closing costs to consider, like appraisals, title services and inspections, which vary tremendously by area. Last is a periodic servicing fee, from $25 to $35 a month tacked onto your bill.

To get a good deal, look for values on the origination fee and periodic fees, Scholen said, adding that the other fees for reverse mortgages tend not to fluctuate.

The amount you can tap from each loan depends on many factors, said Sandy Cutts, a spokesperson for Fannie Mae. They include your age, the value of your house, the interest rates on each product, and the amount you'd pay in closing costs on each one. A person in their 70s could tap about $100,000 in equity on a $200,000 home with any of the products, said Justin Miese, a spokesperson for Financial Freedom.

On a $200,000 house, you might pay about 3 percent of the home's value, or $6,000, in closing costs, Miese added.

Because these products are so complex, reverse mortgage counseling is required by law. Borrowers should ask their counselors to give them an estimate of how much they'll get with each product, Cutts said. To get a ballpark sense of how much equity you might be able to tap, try using the American Association of Retired Persons' reverse mortgage calculator.

In addition, HECMs and Home Keepers have limits, set by the feds, on how much equity you're allowed to tap. As of January 2002, the Home Keeper allows you borrow up to $300,700, if you qualify. ECM uses the same limits set by HUD for ordinary, or "forward", mortgages, which vary by county. Cash Account Plans, like the one the Akins chose, have no cap on the amount of equity you may tap.

The Cash Account Plan, designed for higher-value homes, currently has an interest rate of 6 percent, which adjusts every 6 months, Scabareti said. On the other hand, the HECM loan's annual rate hovers near 3.83 percent, and adjusts with the one-year Treasury bill. You can also take a 3.23 percent rate on the HECM, which adjusts monthly. The Home Keeper's rate is about 5 percent, and moves with the 1-year CD.

If you get a HECM loan, you'll have to pay an up-front mortgage insurance premium of 2 percent of the home's value or the lending limit, whichever is lower. You won't pay mortgage insurance on the Cash Account Plan or Home Keeper loans. On that $200,000 house, that's $4,000.