A reverse mortgage or a home equity conversion mortgage (also known as HECM) is a loan product available to homeowners 62 years or older that allows them to convert part of their home’s equity into cash payments to themselves.

The original purpose of a reverse mortgage was to help retirees with limited income uses the accumulate wealth in their homes to cover basic monthly living expenses and pay for health care. There is no restriction on how homeowners use the proceeds of a reverse mortgage transaction. Reverse mortgages are more commonly being used as part of the homeowner’s comprehensive retirement plan to ensure financial security

In a traditional mortgage, the homeowner makes monthly payments to a lender to pay off their loan balance. With a reverse mortgage, the opposite is done; the lender makes payments to the homeowner. The homeowner is not required to pay back the loan until the home is sold or vacated, therefore, as long as the homeowner lives in the home, monthly payments to the loan balance are not required. The homeowner must still, however, remain current on property taxes, homeowners insurance, and any homeowners association dues (HOA).