A reverse mortgage allows homeowners aged 62 and older to convert their home equity into cash without making monthly mortgage payments. Unlike traditional mortgages where you pay the lender, a reverse mortgage pays you—either as a lump sum, monthly payments, or a line of credit. The loan becomes due when you sell the home, move out permanently, or pass away. While reverse mortgages can provide valuable income during retirement, they come with significant upfront costs and will reduce the equity you can pass to heirs. This guide covers everything you need to know about how reverse mortgages work, eligibility requirements, costs, and whether this financial tool is right for your situation.
What Is a Reverse Mortgage?
A reverse mortgage is a specialized loan that allows senior homeowners to tap into their home equity while continuing to live in their home. The term "reverse" reflects how the loan works opposite to a traditional mortgage: instead of making monthly payments to build equity, you receive payments while your loan balance grows.
Here's the fundamental equation: Borrowed money + Interest + Fees = Rising loan balance
With a reverse mortgage, you retain full ownership of your home. You remain on the title and can stay in your home for life—as long as you meet the loan obligations like paying property taxes, maintaining insurance, and keeping the home in good condition.
According to the Consumer Financial Protection Bureau (CFPB), reverse mortgages are designed specifically for retirees who are "house rich but cash poor"—meaning they have significant home equity but need additional income to cover living expenses, healthcare costs, or other financial needs during retirement.
How It Differs from Traditional Mortgages
| Aspect | Traditional Mortgage | Reverse Mortgage |
|---|---|---|
| Monthly Payments | Required | None |
| Equity Over Time | Increases | Decreases |
| Loan Balance | Decreases | Increases |
| Age Requirement | None | 62+ years |
| Repayment Trigger | Monthly schedule | Death, sale, or move |
Types of Reverse Mortgages
Home Equity Conversion Mortgage (HECM)
The HECM is the most common type, representing the vast majority of reverse mortgage loans. These are insured by the Federal Housing Administration (FHA) and must be obtained through FHA-approved lenders.
Key features:
- 2026 lending limit: $1,249,125 (up from $1,209,750 in 2025)
- Usage: Funds can be used for any purpose
- Required counseling: Must complete HUD-approved counseling before applying
- FHA insurance protection: Guarantees payments even if the lender fails
For more on FHA-backed loans, see our FHA loan guide.
Proprietary (Jumbo) Reverse Mortgages
For high-value properties exceeding HECM limits, proprietary reverse mortgages from private lenders offer borrowing up to $4 million—but with fewer consumer protections and potentially higher interest rates.
Single-Purpose Reverse Mortgages
The least expensive option, offered by state/local governments and nonprofits. Funds are restricted to specific purposes like home repairs or property taxes, and availability is limited by state.
Eligibility Requirements
Age and Equity Requirements
- Minimum age: 62 years old per AARP (all borrowers must qualify)
- Non-borrowing spouse: May qualify to remain in home under certain conditions, but won't receive payments
- Equity required: Approximately 50% (varies by lender)
- Ownership: Own home outright OR have a low mortgage balance payable with reverse mortgage proceeds
If you have an existing mortgage, the reverse mortgage proceeds must first pay off that balance. This reduces the amount of money you'll actually receive from the loan, sometimes significantly.
Property Requirements
The property must be your principal residence—vacation homes, rentals, and investment properties aren't eligible.
Eligible Property Types
- Single-family homes
- 2-4 unit properties (you must occupy one unit)
- HUD/FHA-approved condominiums
- Townhouses
- Manufactured homes built on or after June 15, 1976
Not eligible: Cooperative housing (co-ops)
Additional Requirements
- No delinquent federal debts: You cannot be behind on federal taxes or student loans
- Property condition: Home must meet FHA minimum property standards
- Repairs may be required: If your home doesn't meet standards, you may need to complete repairs before approval
To understand property valuation requirements and the appraisal process, check out our home appraisal guide.
How Much Can You Borrow?
Factors That Determine Your Principal Limit
- Your age: Older borrowers access more equity
- Home value: Higher appraised values mean more borrowing power
- Interest rates: Lower rates allow for higher principal limits
- Payment plan selected: Affects available amounts
The 2026 HECM maximum claim amount is $1,249,125, per NerdWallet. Borrowers typically access 40-60% of their home's value depending on age and interest rates.
Your "net principal limit" is what's available after deducting upfront MIP, origination fees, closing costs, and any existing mortgage payoff.
Payment Options
Lump Sum
Receive your entire approved amount upfront with a fixed interest rate. Best for large one-time expenses like paying off an existing mortgage or major medical bills.
Line of Credit
Draw funds as needed with an adjustable rate. Only pay interest on withdrawn amounts, and unused credit may grow over time.
The line of credit option is often the most flexible choice. Unlike a traditional HELOC, the unused portion of a reverse mortgage line of credit can grow over time, potentially giving you access to more funds later in retirement.
Monthly Payments
- Term option: Fixed payments for a specific period you choose
- Tenure option: Payments for as long as you live in the home
Combination Options
Combine a line of credit with monthly payments. Plans can be changed later for a small fee.
Costs and Fees
Reverse mortgages come with significant upfront and ongoing costs. Understanding these is essential before making a decision.
Upfront Costs Breakdown
| Cost Type | Typical Amount | Notes |
|---|---|---|
| Origination Fee | Up to $6,000 | Based on property value; capped by FHA |
| Upfront MIP | 2.0% of max claim | Required for HECMs |
| Appraisal Fee | ~$500 | Varies by location and property |
| Title Report & Insurance | ~$1,000 | You can shop around for better rates |
| HECM Counseling | ~$125 | May be waived for financial hardship |
| Recording Fees/Taxes | Varies | Depends on local requirements |
| Flood Certification | ~$60 | Assesses flood risk |
| Credit Report | ~$30 | Used for financial assessment |
| Required Repairs | Varies | If home doesn't meet FHA standards |
Ongoing Costs
- Monthly servicing fee: Paid to the lender for loan administration
- Monthly MIP: Ongoing mortgage insurance premium (0.5% annually on loan balance)
- Interest: Continuously accrues on your outstanding loan balance
Total Annual Loan Cost (TALC)
Lenders are required to disclose the TALC rate for HECMs, which gives you a complete picture of all charges expressed as an annual rate. According to Investopedia, comparing TALC rates between lenders is one of the best ways to evaluate reverse mortgage offers.
The high upfront costs of reverse mortgages mean they're generally not cost-effective if you plan to move within a few years. These costs can total $10,000 to $20,000 or more depending on your home's value.
Pros and Cons of Reverse Mortgages
Advantages
No monthly mortgage payments: The loan isn't repaid until you move, sell, or pass away—freeing up monthly cash flow for other expenses.
Access your home equity: Convert equity to cash without selling your home or taking on monthly payment obligations.
Stay in your home: Remain in your home for life as long as you meet loan obligations like property taxes and insurance.
Flexible payment options: Choose between lump sum, monthly payments, line of credit, or combinations that suit your needs.
Non-recourse protection: You (or your heirs) can never owe more than the home's value—even if the loan balance exceeds the home's worth.
Tax-free proceeds: Reverse mortgage funds are considered loan proceeds, not income, so they're not taxable.
Easier qualification: No minimum credit score or income requirements, though financial assessment is still required.
Disadvantages
High upfront costs: Origination fees, MIP, and closing costs can total tens of thousands of dollars.
Equity erosion: Your loan balance grows over time, reducing the equity you can pass to heirs or use for future needs.
Risk of losing your home: Failing to pay property taxes, maintain insurance, or keep up the property can trigger foreclosure.
Impact on government benefits: May affect eligibility for Medicaid and Supplemental Security Income (SSI).
Complexity: More complicated than traditional mortgages, requiring mandatory counseling.
Moving restrictions: If you're away from your home for more than 12 consecutive months (even for medical care), the loan becomes due.
When Does a Reverse Mortgage Make Sense?
Good Candidates
- Need a long-term income source in retirement
- Plan to stay in your home for many years
- Don't plan to leave the home to heirs
- Can afford ongoing property taxes, insurance, and maintenance
- Both spouses are 62 or older
- Want to eliminate existing mortgage payments
Poor Candidates
- Planning to move soon (high upfront costs won't be worthwhile)
- Have a spouse under 62 who would lose access if you pass away
- Struggle with property maintenance
- Want to preserve the home for heirs
- Have health issues that may require moving to a care facility
If you're earlier in your homeownership journey, our first-time homebuyer guide covers options more suitable for building equity.
How to Qualify: The Application Process
Financial Assessment
Since April 2015, lenders must perform a financial assessment to ensure you can afford ongoing costs. This includes:
- Credit history review: Examining your payment patterns for property charges
- Residual income calculation: Determining money remaining after expenses
- Set-aside determination: If needed, a portion of loan proceeds may be held in escrow
Life Expectancy Set-Aside (LESA)
If the financial assessment shows you may struggle to pay ongoing charges, the lender may require a LESA—a portion of your loan proceeds held in escrow to pay property taxes and insurance. This reduces your available funds but protects against default.
Mandatory HUD Counseling
Before applying for a HECM, you must complete a counseling session with a HUD-approved counselor. This approximately 90-minute session covers:
- How reverse mortgages work
- Financial implications and costs
- Alternative options (downsizing, other loans, benefits programs)
- Impact on Medicaid and SSI eligibility
The counseling fee is approximately $125 but may be waived for those who cannot afford it.
Reverse Mortgage vs. HELOC vs. Home Equity Loan
If you're considering tapping your home equity, it's important to compare all your options.
| Feature | Reverse Mortgage | Home Equity Loan | HELOC |
|---|---|---|---|
| Minimum Age | 62 | None | None |
| Equity Required | ~50% | ~20% | ~20% |
| Credit/Income Check | Financial assessment only | Yes | Yes |
| Monthly Payments | None | Yes, immediately | Yes (interest-only during draw) |
| Disbursement | Multiple options | Lump sum | Draw as needed |
| Interest Rate | Fixed or adjustable | Fixed | Variable |
| Closing Costs | High ($10,000+) | Moderate (2-5%) | Moderate (2-5%) |
| Best For | Seniors needing income without monthly payments | One-time expense with predictable payments | Ongoing expenses with flexibility |
For detailed information on these alternatives, see our guides on home equity loans and HELOCs.
Key difference: With a reverse mortgage, you make no monthly payments—but your equity decreases over time. With HELOCs and home equity loans, you must make monthly payments—but you maintain and can rebuild equity.
What Happens When You Die, Move, or Sell
Understanding repayment triggers is crucial for planning.
When the Last Borrower Dies
With a co-borrower: The surviving co-borrower can stay in the home and continue receiving payments, as long as they meet loan obligations.
With a non-borrowing spouse (post-August 2014 loans): May qualify as an Eligible Non-Borrowing Spouse to remain in the home (though no additional payments are received).
Heirs' options:
- Keep the home: Pay off the loan balance with cash or a new mortgage
- Sell the home: Any proceeds above the loan balance go to the estate
- Walk away: The loan is non-recourse—heirs don't owe anything personally
If the home is worth less than the loan balance, FHA insurance covers the difference. Heirs never owe more than the home's value.
When You Move Out
- Permanent move: Loan becomes due
- Away 6+ months (non-medical): Home no longer qualifies as principal residence; loan due
- Away 12+ consecutive months (medical facility): Loan becomes due
- Temporary absence (under 6 months): Notify lender to confirm continued occupancy
Foreclosure Triggers
Your reverse mortgage can go into default if you:
- Fail to pay property taxes
- Let homeowners insurance lapse
- Don't maintain the property adequately
- No longer use the home as your primary residence
- Become delinquent on federal debts
Having a solid financial foundation, including an emergency fund, can help you avoid these situations.
Protecting Yourself from Reverse Mortgage Scams
Unfortunately, reverse mortgages have attracted scammers who target vulnerable seniors. Here's what to watch for.
Common Scams
Contractor scams: A contractor approaches you about getting a reverse mortgage to pay for home repairs, then disappears with the money after receiving payment.
Power of attorney abuse: A family member or caregiver obtains power of attorney and applies for a reverse mortgage without the homeowner's knowledge or consent.
Financial advisor fraud: An advisor pushes you to buy expensive annuities or other products using reverse mortgage proceeds, earning commissions at your expense.
Veteran targeting: Ads falsely promise "VA-backed" reverse mortgages. The VA does NOT offer reverse mortgages—these are scams.
Consumer Protections
HUD counseling requirement: The mandatory counseling session helps ensure you understand what you're getting into before committing.
Right of rescission: You have 3 business days after closing to cancel a reverse mortgage. Notify the lender in writing via certified mail with return receipt requested.
Non-recourse protection: You and your heirs can never owe more than the home's value.
FHA insurance: Protects you if the lender fails and guarantees your payments.
Always work with HUD-approved HECM counselors and FHA-approved lenders. Research any contractor, financial advisor, or company before sharing personal information or signing documents.
Frequently Asked Questions
Yes, you can lose your home if you fail to meet the loan obligations. This includes paying property taxes on time, maintaining homeowners insurance, keeping the home in good repair, and continuing to live in the home as your primary residence. If you fail to meet these requirements, the lender can foreclose on the property.
Yes, you retain full ownership and title to your home. The reverse mortgage is simply a lien against the property, just like a traditional mortgage. You remain responsible for property taxes, insurance, and maintenance.
When you pass away, your heirs have several options: pay off the loan balance and keep the home, sell the home and receive any proceeds above the loan balance, or simply walk away with no financial obligation. Because reverse mortgages are non-recourse loans, heirs can never owe more than the home's value.
No, reverse mortgage proceeds are considered loan advances, not income, so they're not subject to income tax. However, the money you receive could affect your eligibility for need-based programs like Medicaid or Supplemental Security Income (SSI). Consult a tax professional or benefits counselor before applying.
Yes, but the existing mortgage must be paid off using the reverse mortgage proceeds. This reduces the amount of money you'll receive. Many people use reverse mortgages specifically to eliminate their monthly mortgage payments.
A HECM (Home Equity Conversion Mortgage) is FHA-insured with a 2026 lending limit of $1,249,125, while jumbo (proprietary) reverse mortgages are offered by private lenders for homes worth up to $4 million. HECMs offer more consumer protections and require HUD counseling, while jumbo reverse mortgages may have fewer protections but no mortgage insurance premiums.
The process typically takes 30-60 days from application to closing. This includes completing the mandatory HUD counseling session (which must be done before applying), the home appraisal, financial assessment, and processing. Any required home repairs can extend this timeline.
The Bottom Line
Reverse mortgages can be a valuable financial tool for seniors who need to supplement their retirement income while staying in their homes. They offer unique advantages—no monthly payments, flexible disbursement options, and non-recourse protection—that traditional loans can't match.
However, these benefits come with significant trade-offs: high upfront costs, decreasing home equity, potential impact on government benefits, and complexity that requires mandatory counseling. A reverse mortgage is generally not a good fit if you plan to move soon, want to leave your home to heirs, or have a spouse under 62.
Before deciding, compare reverse mortgages to alternatives like HELOCs and home equity loans. Consider consulting with a HUD-approved counselor, financial advisor, and estate planning attorney to understand how a reverse mortgage would affect your specific situation.
If you do proceed, work only with FHA-approved lenders, complete your mandatory counseling, and take time to understand all the costs and obligations involved. A reverse mortgage is a major financial decision—make sure it's the right one for you.
Disclaimer: The information provided on RichCub is for educational purposes only and should not be considered financial, legal, or investment advice. We recommend consulting with a qualified financial advisor before making any financial decisions. RichCub may receive compensation through affiliate links or advertising on this site.
RichCub Editorial Team
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