What Is a Reverse Mortgage?
A reverse mortgage lets an older homeowner borrow part of the equity in a home without selling it. There is no required monthly principal and interest payment on the most common type, but it is still a loan. Interest and fees are added to the balance, so the amount owed usually grows over time.
The most common reverse mortgage is the FHA-insured Home Equity Conversion Mortgage, usually called a HECM. HECMs are for homeowners 62 and older and are available through FHA-approved lenders. HUD explains the current HECM program here.
You still own your home
The lender does not take your title. Your name stays on the home, just as it does with a traditional mortgage.
You also keep the responsibilities that come with owning it. You must pay property taxes and homeowners insurance, keep the home in good condition, and use it as your principal residence. If those obligations are not met, the loan can become due and the home may face foreclosure. The Consumer Financial Protection Bureau explains these responsibilities in plain language.
How do you get the money?
Depending on the loan and the amount available, a HECM may offer several choices:
- A line of credit you can draw from when needed
- Monthly advances for a set period or while a borrower remains eligible
- A lump sum, generally with a fixed interest rate
- A combination of available options
Not everyone can choose every option, and federal limits may restrict how much can be taken in the first year. Ask the lender to show you each available plan side by side, including the rate, fees, and projected balance over time.
How much can you receive?
There is no single percentage that applies to everyone. The amount available depends on the age of the youngest borrower or eligible non-borrowing spouse, current interest rates, the home’s value, the FHA program limit, and any mortgage or liens that must be paid off.
An online estimate can be useful for a first look, but it is not a loan offer. A lender has to review the property, existing debt, and the borrower’s financial information before giving a reliable figure.
What does a reverse mortgage cost?
A HECM can include an origination fee, appraisal and closing costs, FHA mortgage insurance, servicing charges, and interest. Some costs may be paid with loan proceeds rather than out of pocket, but financing a fee does not make it free. It becomes part of the balance and can accrue interest.
This is why time in the home matters. A loan with significant upfront costs may be a poor value if you expect to move soon. Ask for a written comparison that shows the cost after two years, five years, and ten years, not only the cash available at closing.
Loan repayment happens later
A HECM is usually repaid when the last borrower sells the home, moves out permanently, or dies. It can also become due earlier if the borrower stops meeting the loan obligations.
Heirs are not automatically forced to walk away from the home. They may be able to sell it and keep any money left after the loan is paid, or pay off the loan if they want to keep the property. Timelines matter, and different rules can apply when there is a co-borrower or an eligible non-borrowing spouse. The CFPB has a current guide to repayment and heirs’ options.
Counseling is required
Before a HECM can close, each borrower must complete counseling with a HUD-approved agency. The counselor is there to explain the loan, the costs, the responsibilities, and possible alternatives. Counseling is not an approval and does not mean the loan is right for you.
HUD provides a housing counselor search and a telephone locator at 800-569-4287. You should feel free to ask questions privately and take time after the session before making a decision.
A reverse mortgage may not be the right move if
- Property taxes, insurance, or maintenance are already hard to keep up with.
- You expect to move in the next few years.
- Keeping as much home equity as possible for your heirs is the top priority.
- A less expensive option can solve the same problem.
- Medicaid, SSI, tax, estate, or trust questions have not been reviewed by the right professional.
- Anyone is rushing you, telling you how to spend the money, or discouraging you from talking with family or a counselor.
Take the next step at your own pace
Start with the reason you are considering the loan. Then compare the reverse mortgage with at least one other way to meet that need. Bring the numbers to a HUD-approved counselor and involve a tax, legal, benefits, or financial professional when your situation calls for it.
- When a reverse mortgage may fit
- When it may be a bad idea
- Guide for adult children
- Compare a reverse mortgage, HELOC, and home equity loan
- Costs and fees
- Foreclosure risks and borrower responsibilities
- What families and heirs need to know
Frequently asked questions
Do I give up ownership of my home?
No. The title stays in your name. As with any mortgage, the home is the security for the loan.
Do I still pay property costs?
Yes. You must continue paying property taxes, homeowners insurance, and other required property charges and keep the home maintained.
When does a reverse mortgage have to be repaid?
A HECM is usually repaid when the last borrower sells the home, no longer uses it as a principal residence, or dies. Special rules may protect an eligible non-borrowing spouse.