by James Garton

Created on: June 08, 2010   Last Updated: June 09, 2010

The FHA was the first to develop a reverse mortgage program known as the Home Equity Conversion Mortgage (HECM). This program allows a senior age 62+ to pull out a steady stream of cash from their homes equity. The National Council on Aging provides toll free assistance for anyone that needs information or detail on a reverse mortgage at: (800) 510-0301.

The program works best for those seniors that need to supplement their income, who would otherwise find it difficult to live on a low fixed income. Some seniors may also need additional cash to pay medical bills, or help children or grandchildren with a home purchase, college tuition, or to start a new business.

Many seniors lived for years within a disciplined budget to payoff their home mortgage. All of that equity that accumulated for decades can now be withdrawn, and converted to needed cash. However, unlike a typical home equity loan, which also withdraws equity, a reverse mortgage operates differently. No repayment of the loan is required, until the homeowner no longer dwells in the home as the principal resident.

Many married seniors, fear the bank will take their home away, or require payment in full if one of the spouses should pass away. However, the loan agreement, and payment will remain in force if the surviving spouse continues to live in the home, keeps it maintained, insured, and is current on taxes.

Once you decide a reverse mortgage is the right move for your financial situation, you also need to determine which equity withdrawal option will best serve your income needs.

1) Tenure: Provides equal monthly payments for as long as one of the borrowers continues to dwell in the property as the primary residence.

2) Term: A fixed period of equal monthly disbursement.

3) Line of Credit: Available cash that can be withdrawn as you need the money. Once the line of credit is exhausted, no more money is available.

4) Modified Tenure: Is a blend of a equity line of credit and monthly payments.

5) Modified Term: Provides a line of credit and monthly payments for a fixed term.

Many are not aware that a reverse mortgage can also be used to purchase a primary residence. You will be required to provide cash to pay the difference between the HECM and the balance of the sale price. You will also need money to pay for any closing cost fees. This program can work well for seniors that want to sell a larger home or to move closer to children, without taking on debt, and liquidating savings.

The reverse mortgage could be a smart solution to remove the financial stress for many seniors. Keep in mind that many scams are preying on older homeowners, so it's best to deal with a local lender. Take your time, do your research, and always have a trusted real estate attorney review your documents.

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