A reverse mortgage is or Home Equity Conversion Mortgage (HECM) is a special type of home loan senior homeowners that uses the home’s equity as collateral. In other words, it converts a portion of the equity into cash and the equity that the owner has built up over time is then paid to them.

Unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence – or fail to meet the obligations of the mortgage.  At that time, the estate has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. Any remaining equity is inherited by the estate. The estate is not personally liable if the home sells for less than the balance of the reverse mortgage.

HECM loans can also be used to purchase a primary residence if there is enough cash on had to pay the difference between the HECM proceeds and the sales price plus closing costs for the property being purchased.

To be eligible for a HECM reverse mortgage, the Federal Housing Administration (FHA) requires that all homeowners be at least age 62 and the home must be owned free and clear or all existing liens. Borrowers must also have the financial resources to pay ongoing property taxes and insurance – and must live in the home.