Home Equity Conversion Mortgages can provide money for elderly homeowners in need by allowing them to tap the equity in their home as a line of credit, in one lump amount or as fixed monthly payments.

Ideal for senior citizens in need of cash to pay for health care costs and living expenses, HECM reverse mortgage plans allow homeowners to remain in their homes without having to make any monthly payments.

What is a reverse mortgage?

Insured by the federal government and provided by private lenders, the HECM reverse mortgage is a form of equity release that allows seniors over the age of 62 to access their home equity to cover emergencies or to pay for early retirement. The loan does not have to be repaid as long as the borrower remains in his or her home; however, the homeowner must continue to pay taxes and insurance on the property.

What are the pros and cons?

Because reverse mortgages provide money to elderly homeowners, they can be a big relief for older children who are concerned over how they will support their aging parents. Unfortunately, there are interest charges, and the HECM standard demands an insurance premium of about 2 percent of the home's value. Although seniors donít have to pay this out of pocket, it inevitably works to increase the cost of borrowing. Loans are also subject to HUD reverse mortgage lending limits which can make this borrowing strategy impractical for some seniors.

In 2010, the FHA introduced the HECM saver in response to complaints regarding unmanageable costs. This reverse mortgage program provides money for elderly property owners at the same interest rate, but the initial insurance premium is reduced to 0.01 percent of the property's value. Lower upfront costs make the loan more alluring to seniors who need it; however, there are caps and restrictions. So if you need a substantial loan, the HECM saver may not be a good option.

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