A reverse mortgage, sometimes referred to as a home equity conversion mortgage (HECM) is typically taken out by senior citizens who have paid off their houses and want to use their home for collateral on a new loan.

The bank calls these people property-rich but purse-poor. A federally insured reverse mortgage could help relieve the financial burdens the financial burdens – like how to pay for both food and medications – that the over 70 portion of the population are facing everyday.

According to the American Association of Retired Persons – AARP, consumers are turning to reverse mortgages for any number of reasons, including paying off existing mortgages, paying for their prescription drugs and improving their quality of life.

Certain conditions on the loan have to be met before a repayment plan is put in place and that includes the borrower must be at least 62 years of age and living in the house; if there is a first mortgage on the house, the homeowner must borrow enough money to pay that mortgage off so they do not have a monthly house payment. The terms of the loan agreement are that the homeowner is not going to pay the loan back until they die, sell the house or move out permanently.  In case the homeowner passes away, their family is left responsible for the loan, however the likelihood that they would have to pay the loan back is slim because the property is typically sold for the proceeds.

In addition to the age requirement, there are no employment or income verifications to deal with on a reverse mortgage. Additionally, many borrowers find comfort in the fact that they still own and control what is going on with their house and property. They remain responsible for the maintenance and general upkeep of the home.

As with a traditional loan, the property is inspected and appraised, then depending on several things, like the interest rate, location of the home, value of the home and the age of the borrower, the homeowner can expect to receive between 50 and 75 percent of the approved value of their house; however, the legal, appraisal, mortgage-insurance premiums, origination fee and monthly service charges come off the top of the loan amount before any funds are dispersed to the borrower.

Once the loan has been approved and closed, the proceeds can be taken as a lump sum, a line of credit, as a monthly payment or as a combination of two. With a line of credit, the longer the money stays in the bank the more it grows and the more money a homeowner has to borrow.

Reverse mortgage borrowers must go through consumer credit counseling in order to remain in the program. Another downside to a reverse mortgage is that it will cost a homeowner approximately 6 to 8 percent of the properties value in fees, which is a major deterrent to many would-be borrowers.