Home Equity Conversion Mortgages (HECMs), also commonly known as Reverse Mortgages, are government-insured loans. These loans let qualified senior homeowners convert illiquid home equity into available tax-free cash.
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, 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 who 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.
This isn't for everyone. There are strict guidelines and protections. Speak with a qualified estate planning attorney.
Reference: Fifty-Plus Advocate (April 26, 2016) "Top ways to use a reverse mortgage"