Reviled for years for high costs, today the reverse mortgage—sometimes referred to as a Home Equity Conversion Mortgage, or “HECM”—is a government-insured loan that allows qualified seniors to turn illiquid home equity into tax-free cash that they can use in a variety of ways. Many people use the reverse mortgage to make it possible to stay in their homes during retirement.
The Fifty-Plus Advocate says, in "Top ways to use a reverse mortgage," that when used properly, a reverse mortgage may be the solution to living an independent, fulfilling life. A reverse mortgage lets you retain full control and ownership of your home. You are still obligated to maintain the property and to pay real estate taxes and homeowner's insurance, but you can stay in your home for the rest of your life. You also can sell your home at any time without a penalty, and any profit from the sale after paying off the reverse mortgage belongs to you. In many instances, even properties held in a trust or life estates are eligible.
For qualified borrowers, the unique aspect of a reverse mortgage is that you don't have to make a monthly mortgage payment. That's what's thought of as the "magic" of a reverse mortgage. You can elect to receive a lump sum of cash, a monthly check for life, or a line of credit to be used if needed—all with no monthly payment for as long as you live in the home.
In addition, your home doesn't have to be free and clear, which can help seniors with a mortgage that are struggling to make the required monthly payment—impacting their quality of life. A reverse mortgage allows you to see a significant increase in monthly cash flow, which can reduce financial stress. However, even if you don't need cash or a monthly tax-free income, a reverse mortgage can be used as an estate-planning tool to protect against unexpected life events and to prepare you for the unknown.
There are strict rules governing this financial product, making it something that you should not do on your own. If a salesperson is pressuring you to move forward fast, steer clear! Talk with a qualified estate planning attorney to see how this will impact your current situation and your estate plan.
Reference: Fifty-Plus Advocate (April 26, 2016) "Top ways to use a reverse mortgage"