A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash.
Reverse mortgages are regulated by the FHA (Federal housing administration) through a program called HECM (Home Equity Conversion Mortgage). This plan was designed to give older Americans greater financial security. Senior citizens can use the money from a reverse mortgage to supplement Social Security, meet medical expenses, make home improvements, and meet other needs or unexpected expenses.
The money from a reverse mortgage can be used any way the borrower wishes. This money is not subject to income taxes, either. Once you have been approved to receive a reverse mortgage, you can decide to receive payment in a myriad of ways, including:
- Tenure
- Term
- Line of Credit
- Modified Tenure
- Modified Term
Tenure allows you to receive equal monthly payments as long as you continue to occupy your property as your primary residence. Term also gives you monthly payments, but only for a fixed period. Line of credit allows you unscheduled payments whenever you choose in the amount you choose until the funds associated with your reverse mortgage are exhausted. Modified tenure is a combination of the line of credit and tenure; you have a limited line of credit along with monthly payments. Modified term is a combination of line of credit and term payment plans; you have a line of credit available, plus monthly payments for a fixed amount of time.