If you own your home and/or investment property, especially if you are nearing retirement years and want to enjoy your properties with no monthly mortgage payments to make, your first thought might be prepaying the current mortgage.

For example, if you have a 7 percent home mortgage interest rate and you make an extra $100 principal payment this month, you really invested your $100 at 7 percent because you won’t have to pay any more interest on that borrowed $100. Your investment “earnings” from prepaying mortgage principal come in the form of future interest savings over the remaining life of that mortgage. In other words, you will avoid paying interest on the $100 of that mortgage principal this year, next year and every year in the future.

In addition to the obvious interest savings, here are the important things to consider about prepaying an existing mortgage:

1. Unless you plan to keep a property at least 10 years, prepaying part of the mortgage principal periodically won’t result in much total interest savings. The reason is the extra principal payments shorten the life of the mortgage, and the interest savings come at the end or last few years of a mortgage’s term.

2. Prepaying on a mortgage balance will leave the borrower with less cash available for other purposes. For this reason, it is often not smart to make a large lump-sum mortgage prepayment because you can’t easily get that money back if you need it for an emergency or investment sometime in the future.

3. An exception to the rule that money “invested” prepaying a mortgage cannot be easily borrowed again except by refinancing with a new mortgage is a home equity line of credit (HELOC). Paying off or paying down a HELOC balance results in instant interest savings from prepayment, but the money can be quickly re-borrowed again by writing a check on the HELOC account. That’s why I recommend, after paying off your mortgage, obtaining a HELOC secured by that property for emergency use.

4. If your existing mortgage has only a few years remaining, such as a mortgage in the 25th year of a 30-year amortized term, the actual interest savings will be small. This is hard to explain, but the reason is in the last few years of an amortized long-term mortgage, most of each monthly payment goes toward paying off the principal balance and very little is tax-deductible interest.

The best way to understand this is to print out a monthly amortization schedule of your mortgage for its remaining years showing each month’s allocation to principal and interest. If your lender provides a monthly payment statement, you will see this principal-interest allocation each month.

5. If your home mortgage requires PMI (private mortgage insurance) monthly premiums, when the loan balance is paid down below 78 percent of its original balance (usually after about 11 years), be sure the lender cancels your PMI premiums. Or, if your loan-to-value ratio is 80 percent or lower, and you have an on-time payment record for the last 24 months, most mortgage lenders will cancel your PMI if you pay for a new appraisal by one of their “approved appraisers.” Check with your lender if you think you are eligible to cancel your PMI either from principal reduction and/or property-value appreciation. The PMI monthly premium savings can be huge!

6. Forget about losing the income tax interest-deduction savings on your home mortgage. The reason is it is not a dollar-for-dollar saving. To illustrate, if you pay $100 of mortgage interest and are in the 28 percent income tax bracket, you save $28 of federal income taxes for each $100 of home mortgage interest deducted. Paying $100 of mortgage interest to the lender to save $28 in income taxes is obviously NOT a “good deal.” Of course, it’s better than no tax deduction at all!

7. The “psychic value” of owning a property free and clear seems to be the major motivation why many homeowners make extra mortgage principal payments. Frankly, I own one property free and clear, but that property worries me because I think I have too much idle equity at risk in it. So I got a $100,000 HELOC on it just in case I need some “fast cash!”

REVERSE mortgages have been a boon to older homeowners, as well as the mortgage industry. But the product’s popularity has brought some complications.

Reverse mortgages allow people age 62 and older to draw on the equity in their primary residences, with monthly payments that continue as long as the borrower remains in the home.

People have migrated in record numbers to such loans, according to the Reverse Mortgage Lenders Association, a trade association in Washington.

Borrowers last year took out nearly 86,000 Federal Housing Administration home equity conversion mortgages, the dominant reverse mortgage product, compared with just 48,500 in 2005.

In fact, the loans have grown so popular that they run the risk of outstripping federal limits. As of last week, mortgage industry officials said they feared they would be forced to suspend their federal reverse mortgage programs because the government had agreed to insure only 275,000 such loans — a number that is rapidly being approached.

Peter H. Bell, president of the National Reverse Mortgage Lenders Association, said it was likely that Congress would lift the loan limit, at least temporarily, by the deadline, which is Feb. 15. “We’re moving along, but I won’t breathe easily until it’s passed,” Mr. Bell said.

Mr. Bell said lenders were issuing reverse mortgages at a monthly rate of about 8,000, compared with roughly 6,000 a year ago. “The product is somewhat counterintuitive, and as a result some people are leery about it,” he said. “But as more people have these loans, more people know someone who has one, which fuels the growth.”

A 62-year-old homeowner in Larchmont, N.Y., with a $240,000 house that has been fully paid off can qualify for a lump-sum payment of $104,000 or monthly tax-free payments of $650 under the federally insured Home Equity Conversion Mortgage.

The monthly payments continue as long as the borrower lives in the house, even if those payments exceed the overall value of the home. In those cases, he or his estate need repay an amount equal only to the home’s value. Otherwise, the borrower or his estate repays the amount loaned, plus interest.

Payouts are based on a home’s location and value, current interest rates, a borrower’s age and the amount of equity he or she has in the house.

There are potential downsides to these loans. For instance, closing costs, which are wrapped into the loan, are comparatively high, so borrowers who might move within a few years might wish to find other alternatives. These and other issues are covered in free, but mandatory, financial counseling sessions borrowers must complete before receiving a reverse mortgage. (Web sites like AARP’s cover some such issues, at AARP.org/money/revmort/.)

As reverse mortgages have grown more popular, lenders have begun creating more types of these loans. For instance, the Seattle Mortgage Company last year rolled out a line of jumbo reverse mortgages, which allow larger payouts but at typically higher interest rates. These new jumbo reverse mortgages allow borrowers to refinance the loan after one year with no penalties, which is sooner than some competitors.

Meanwhile, the BNY Mortgage Company, a joint venture of EverBank and the Bank of New York, last month introduced the HECM 100, a reverse mortgage with an interest rate that is 0.5 percent lower than the bank’s previous products.

Joseph DeMarkey, a BNY Mortgage vice president, said the lower interest rate meant that a 70-year-old in a $300,000 home can receive about $13,000 more from the loan over its typical lifetime.

The New York-area market for reverse mortgages, Mr. DeMarkey said, has been consistent with that of the rest of the country. “It’s been tremendous growth,” he said.

The number of federally insured reverse mortgages made in the United States last year jumped 77 percent, and legislators and lenders are bracing for another huge increase in 2007.

The Federal Housing Administration, a branch of the U.S. Department of Housing and Urban Development, insured 76,351 Home Equity Conversion Mortgages (HECMs) in 2006 compared with 43,131 for 2005. The HECM is the most popular reverse-mortgage program and accounts for nearly 85 percent of the reverse market.

A reverse mortgage is a loan against a home that is not payable until the homeowner dies, sells the home or permanently moves out of the home. Reverse mortgages allow homeowners age 62 and older to turn the equity in their home into cash without having to move or make a monthly mortgage payment. There is no minimum credit or income requirement to qualify for a reverse mortgage.

“More seniors are recognizing that traditional retirements tools, such as IRAs, pensions and 401(k)s are not providing sufficient income to help fund everyday living expenses and healthcare,” said Peter Bell, president of National Reverse Mortgage Lenders Association. “Through proper education, more retirees are recognizing that the home they have lived in for so many years can now take care of them by using a reverse mortgage to access the equity accumulated over 20, 30, 40 years to help them live more comfortably.”

The U.S. House of Representatives recently passed a bill that would temporarily suspend the cap on the number of HECMs that can be insured by FHA. A companion bill in the Senate is expected to be considered soon. Currently, FHA cannot insure more than 275,000 HECMs, and some industry officials say 120,000 new reverse mortgages this year is a realistic number.

In an effort to capture even more reverse-mortgage customers, New York-based BNY Mortgage Co. has introduced a new product nearly identical to the current HECM with a slightly lower interest rate. The company’s HECM 100 product allows a 70-year-old homeowner, with a home valued at $300,000, to receive approximately $13,000 more in borrowing capacity than the traditional HECM loan. At today’s interest rates, the homeowner will save approximately $28,000 in interest costs over the expected life of the average loan.

BNY Mortgage Co. is a joint venture between EverBank and The Bank of New York. It operates as an originator and servicer of reverse-mortgage loans and has wholesale partners throughout the United States.

“BNYMC’s introduction of the new HECM 100 product is wonderful news for senior homeowners because it offers the consumer more money at lower costs,” said Meg Burns, HUD’s director of single-family program development. “This is exactly the kind of product innovation the reverse mortgage industry needs in order to help older homeowners live a more comfortable and financially secure life.”

The Santa Ana, Calif., metropolitan area displaced Los Angeles as the top reverse-mortgage market in the country with 5,825 loans funded (compared with 3,067 in 2005), followed by Los Angeles (5,758, up from 3,915); Sacramento, Calif. (3,625, compared with 2,161); Coral Gables, Fla. (3,577, up from 1,387); San Francisco, Calif. (3,353, compared with 2,040); New York City (2,492, up from 1,454); Fresno, Calif. (2,461, compared with 942); Phoenix (2,438, compared with 720); Boston (2,263, up from 1,148); and Denver (1,947, compared with 1,515 in 2005).

NRMLA, which has seen its lender membership grow from 370 firms in 2005 to 500 in 2006, attributes the explosive growth in reverse mortgages to several factors. Topping the list have been a decade-long run-up in home appreciation rates in many parts of the country allowing seniors to access greater amounts of equity, more lenders offering the product and greater acceptance of reverse mortgages as a wealth management tool.

Brian Montgomery, who serves as FHA commissioner and assistant secretary of Housing at HUD, said that he anticipates reverse mortgages will one day be as commonplace as 401(k)s and other retirement planning tools.

“HUD has gone to great lengths to educate community leaders and senior advocates about the potential benefits of reverse mortgages, which has helped make more people comfortable with recommending the product to their elderly clients,” NRMLA’s Bell said. “I think Commissioner Montgomery deserves as much credit as anyone for helping to make reverse mortgages a more mainstream financial planning tool.”