A reverse mortgage is a loan available to homeowners who are 62 years
or older that enables them to convert part of their equity in their home
into tax-free cash! FHA, who insures the reverse mortgage, for the benefit of the
borrower, terms this a “Home Equity Conversion Mortgage” (HECM).
The product was conceived as a means to help retirees improve their quality of life utilizing the accumulated equity in their homes. The "tax free" proceeds may be used to cover living expenses, pay for long term health care, pay off their existing mortgage and even to take that long awaited vacation. The attractive part of the HECM is that there are no restrictions on how the proceeds can be used...IT IS YOURS TO DO WHAT EVER YOU WANT!
The loan is called a reverse mortgage because the traditional mortgage everyone is used to has a payback stream that is in reverse. Instead of making payments to a lender, as with the traditional mortgage, the borrower makes no payments, with a HECM and the lender makes payments to the borrower. The HECM also has many varied options the borrower can take advantage of.