FHA reverse mortgages, called Home Equity Conversion Mortgages (HECM) allow seniors, age 62 and older to convert heir home equity into cash with no monthly payments. The loan is called a reverse mortgage because instead of making monthly payments to a lender as with a traditional mortgage, the lender makes payments to the borrower and was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction how reverse mortgage proceeds can be used. 

A reverse mortgage uses a home's equity as collateral. The amount of money the borrower is eligible for depends on the person's age,  the appraised value of the home, interest rates and upfront costs. The older someone is, the more proceeds they may receive. Interest accrues on the outstanding loan balance, but no payments must be made until the home is sold or the borrower(s) die, at which point the mortgage must be repaid entirely. After the last surviving homeowner moves out of the property or passes away, the estate or heirs have the option satisfying the HECM by paying the lesser of the mortgage balance or 95% of the current appraised value of the property. 

There are a number of payment plans associated with HECM loans:

Line of Credit: Most reverse mortgage borrowers establish a line of credit that they access only when funds are needed. You can opt for unscheduled payments or installments, at times and in an amount of your choosing until the line of credit is exhausted. A nice feature of the line of credit is that the unused portion can grow over time due to a growth factor that takes into consideration that you are one year older and that your home has appreciated in value.

Term Payment: This option provides borrowers with a fixed monthly payment for a specified period of months. This amount cannot change, even if your home decreases in value.

Tenure: This is a popular option in that it provides borrowers with equal monthly payments as long as at least one borrower lives in the home as their primary residence. Even if the loan balance exceeds the value of the home, the borrower will still receive the same monthly payment. 

Modified Tenure/Line of Credit: With this option, the borrower establishes a line of credit and receives scheduled monthly payments for as long as the borrower lives in the home.

Modified Term/Line of Credit: This option is a combination of a line of credit plus monthly payments for a fixed period of months selected by the borrower.

Also available is a HECM for purchase which is a reverse mortgage that allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage. The borrower can choose to repay as much or as little as they like each month, or make no monthly principal and interest payments. The flexible repayment plan makes it easier for a borrower to afford the home they really want, preserve more savings and retirement assets and improve cash flow. As with any reverse mortgage, the borrower must keep current the property-related taxes, insurance and maintenance as part of their ongoing loan obligations. Repayment is required once they sell the home, pass away, move out or fail to meet their loan obligations.