Seniors Tap Home Equities to Pay Bills : Finances: A reverse mortgage turns the tables on conventional lending, with the house serving as security for the loan.

At age 79, Bernice Stuart knew she couldn’t live on Social Security and still afford to keep her three-bedroom bungalow. But she didn’t want to move.

“I had worked so hard to pay for it,” she said, “and it was free and clear.”

After studying her options for two years, Stuart found a way to keep her house in the Minneapolis suburb of Richfield and bring in enough money to pay her bills: a reverse mortgage.

As its name suggests, a reverse mortgage turns the tables on a conventional home mortgage, where a buyer borrows a lump sum to purchase a house and repays the money in installments, with the house serving as security for the loan.

In a reverse mortgage, the homeowner typically owes little or nothing on the house and receives a loan either in a lump sum, in monthly installments or whenever he or she needs money. The homeowner’s equity serves as security for the loan, which usually doesn’t have to be repaid until the owner sells, dies or moves.

With her reverse mortgage, Stuart receives cash whenever she needs help paying property taxes and for necessities, such as new tires for her car.

“You can maintain your dignity and your lifestyle without worrying your head,” Stuart said. “It’s been a blessing.”

It’s also new, and information can be hard to come by. “The literature I would get from these banks didn’t answer all the questions,” Stuart said.

Finance experts say one of the best sources in the field is “Retirement Income On the House: Cashing In on Your Home With a Reverse Mortgage,” a book published last year by Ken Scholen of Eagan, Minn.

Scholen, 47, was an early advocate of reverse mortgages, beginning when he was director of the Wisconsin Board on Aging nearly 20 years ago.

“I ran into people looking for a product that didn’t exist,” Scholen said. He developed a proposal passed by Congress in 1987 authorizing a federally insured reverse-mortgage program; then he worked with the Department of Housing and Urban Development to bring it into existence.

“It was a kind of insurance that had never existed before,” said Scholen, who works with HUD, the American Assn. for Retired Persons and other groups to spread the word about reverse mortgages.

Private programs also are offered by San Francisco-based Transamerica HomeFirst in California, New Jersey and Pennsylvania and by Freedom Home Equity Partners of Irvine, Calif. Their involvement has reassured some reluctant consumers, Scholen said.

“To have corporate America’s faith . . . that’s a real big step,” he said.

Meanwhile, the Federal National Mortgage Assn., or Fannie Mae, is developing a privately insured reverse-mortgage program.

Reverse mortgages funded by government agencies are offered to homeowners with low and moderate incomes. Generally, they may be used only for specified purposes, such as paying property taxes and repairing or improving homes.

Private-sector reverse mortgages fall into three categories:

* Federal Housing Administration-insured loans offer lump-sum payments, a line of credit, equal monthly installments for as long as a person lives in his or her home, or cash installments for a fixed term.

* Privately insured reverse mortgages may offer higher cash advances than FHA’s program. Some plans let homeowners safeguard some equity for heirs; others continue monthly advances through annuities even if borrowers sell or move.

* Uninsured reverse mortgages provide monthly cash advances, usually for at least three years but not for more than 10 years, and must be repaid when the loan advances stop.

Scholen doesn’t recommend reverse mortgages for some people, such as those who want to leave their house to their heirs debt-free, and retirees in their early 60s, who probably should not tap their equity until they are older.

But other elderly people have used reverse mortgages to save homes from foreclosure by paying off an existing mortgage. “It can pretty dramatically change somebody’s circumstances,” Scholen said.