If you have a mortgage, the rules require that you pay it off when you take a HECM reverse mortgage, no matter what option you select. If the balance of your existing mortgage is small relative to the total amount you can draw, you can use your remaining HECM borrowing power for any of the purposes listed here.
If your existing balance is so large that it uses all or most of your borrowing power, paying off the balance becomes the only objective. Converting a standard mortgage into a HECM reverse mortgage has the advantage that it replaces debt that must be repaid in monthly installments with debt that doesn’t have to be repaid until you die or move out of the house permanently. If your capacity to make the payments on your existing mortgage has been impaired for any reason – for example, you might have retired or plan to -- it might be wise to convert.
The down side is that the cost of the HECM, which includes mortgage insurance and other upfront fees, will usually exceed the cost of your current mortgage. Further, if you use all or most of the proceeds from a HECM to repay a forward mortgage, you lose the ability to draw spendable cash from the HECM in later years. A strategy of delaying the HECM until the existing mortgage has been paid off out of current income will pay off big in the future.