It's a tempting proposition: after years of writing cheques to the bank to pay off your mortgage, the bank will write a nice big cheque for you.

That's the allure of reverse mortgages, which allow anybody 60 or older to borrow money against the value already built up in their home. With the number of 60-year-olds in Canada expected to double in the next 25 years, demand for the product is expected to grow.

Seeing that as an opportunity, a new provider of reverse mortgages has arrived in Canada, offering some competition to the Vancouver-based Canadian Home Income Plan, which has become almost synonymous with the product over the past 20 years.

Seniors Money Ltd., based in Mississauga, Ont., started selling reverse mortgages in Ontario in 2007. By this past February, it had expanded into every other province except for Quebec, a market it expects to enter later this year or in early 2009.

There are differences between the two competing reverse mortgage products, but the basics are the same. They allow a person or a couple to convert up to 45 per cent of a home's equity into cash, providing extra money that can come in handy during the retirement years when there's an absence of a regular income stream.

A homeowner will usually get a lump sum upon opening an account and will make no interest payments, although the products are offering options now to receive the funds in regular instalments and make some payments along the way.

Home equity gradually decreases as the debt load goes up, but the products are designed to leave a homeowner with at least 50 per cent equity at the end of a reverse mortgage, and promise total charges will never be more than the value of the home. Reverse mortgages get repaid when a homeowner dies, the house is sold, or a pre-determined term ends, often set at 10 or 15 years.

Reverse mortgages are still a niche market; CHIP currently has 6,600 of them outstanding in Canada worth over $700 million. But they appear to be catching on with seniors, who are estimated by Statistics Canada to have 77 per cent of their net worth in their home equity. According to Greg Bandler, senior vice-president of sales and marketing for CHIP, the company's business is now growing by over 20 per cent a year.

Financial experts warn there are drawbacks. Reverse mortgages, for instance, charge interest rates that are usually two to three percentage points higher than a simpler home equity line of credit, which some financial planners suggest as a better alternative.

Seniors Money offers a variable rate calculated as the bank prime rate plus 1.25 per cent, while CHIP's rate is prime rate plus 2.0 per cent. But Seniors Money's interest compounds monthly, while CHIP's compounds semi-annually. Some customers also are eligible for discounts under the CHIP plan.

"This is a product for people who either can't make any payments or don't want to make any payments, and they are typically looking to free up cash flow," says Nick DiRenzo, president and CEO of Seniors Money Canada.

Reverse mortgages help seniors to "squeeze a living out of their home, so they don't just have to sit there on the old nest egg like their grandparents did," adds PJ Wade, strategist and Toronto author of the reverse mortgage primer Have Your Home and Money Too.

The best candidate for a reverse mortgage is somebody who wants to stay in their existing home for the long haul, but has no major funds or employment income to draw on and doesn't have other options to raise cash, such as taking in a border or reorganizing their finances, says Ms. Wade.

If a homeowner can be just as happy downsizing and moving somewhere else, then the reverse mortgage is not the right route, she says.

"There are a lot of situations where there may be better options," agrees Philip Shead, a Certified Financial Planner with Investors Group in Winnipeg. A line of credit, for instance, where a person pays off the monthly interest charges right away, may be a better fit in many circumstances.

He cautions that a person doesn't typically make any payments towards a reverse mortgage, so what is owed can accumulate to a large portion of the home's value.

Ms. Wade suggests that financial planners may be hesitant to recommend reverse mortgages because many aren't familiar with them, and aren't interested in supporting a product that puts a client back into debt.