A reverse mortgage is a loan that lets eligible homeowners convert some of their home equity into funds without making required monthly principal-and-interest payments while they meet the loan’s obligations. The balance—including borrowed funds, interest, and applicable fees—generally grows over time and is repaid when a repayment-triggering event occurs. In the United States, the most common type is the FHA-insured Home Equity Conversion Mortgage (HECM); proprietary reverse mortgages are also available from some lenders.
A reverse mortgage may suit older homeowners who want to use home equity while continuing to live in their primary residence, and who can afford ongoing property expenses. People also consider a HECM for Purchase when they want to buy a primary residence using a reverse mortgage and a substantial down payment. Whether either approach is appropriate depends on the homeowner’s goals, finances, property, and program requirements.
Eligibility and approval depend on the borrower’s circumstances, the property, credit and financial review, and applicable program guidelines. All financing is subject to credit approval and program guidelines. Proprietary reverse mortgages may have different eligibility standards and terms.
A reverse mortgage is secured by the home. The borrower keeps ownership, but the lender places a lien on the property. As proceeds are taken, interest accrues and applicable charges may be added to the balance. Because borrowers do not make required monthly principal-and-interest payments while complying with the loan terms, the amount owed can increase and the remaining equity can decrease. Borrowers may be able to make voluntary payments, subject to the loan terms.
Costs vary by lender, product, and borrower. A HECM may include an upfront mortgage insurance premium and an annual mortgage insurance premium, as well as lender origination charges, appraisal and other closing costs, and potentially servicing fees. Some costs may be financed into the loan, which increases the balance. Ask for an itemized estimate and discuss which charges are due at closing and which may be added to the loan.
HECMs are subject to a national maximum claim amount that HUD sets and may update. The amount available to a borrower is not necessarily that limit: it is generally affected by the age of the youngest borrower or eligible non-borrowing spouse, the home’s appraised value, the program limit, the interest rate, and any required deductions or set-asides. Proprietary products may use different limits and terms.
A reverse mortgage may provide access to home equity without requiring scheduled monthly principal-and-interest payments, which may help some homeowners manage cash flow or fund expenses. A line of credit or scheduled disbursements may offer different ways to access funds, depending on the loan. A HECM for Purchase may let an eligible older buyer purchase a primary residence with a down payment and a reverse mortgage rather than a traditional monthly mortgage payment.
There are important trade-offs. Interest and fees can cause the balance to grow, reducing equity available for a future move or inheritance. The borrower remains responsible for taxes, insurance, maintenance, and other loan obligations. If those responsibilities are not met, the loan may become due and the borrower could risk foreclosure. Closing costs can also make a reverse mortgage less suitable for someone who expects to move soon. The right choice depends on individual circumstances; a conversation with family, a financial or tax professional, and a HUD-approved counselor may help inform the decision.
A reverse mortgage does not mean the borrower can stop paying property expenses, and it does not transfer ownership to the lender at closing. The borrower retains title while the loan is in good standing. If a repayment-triggering event occurs, the loan must be repaid under its terms, often through the sale of the home or other funds. For an FHA-insured HECM, the loan is generally non-recourse: neither the borrower nor heirs should owe more than the home’s value under the program’s rules, though all applicable terms and conditions matter.
Heirs may be able to pay off the balance and keep the home, or sell it to repay the loan. HECM rules may allow heirs who sell to satisfy the debt for the lesser of the loan balance or 95% of the home’s appraised value, subject to program requirements. They should contact the loan servicer promptly after a triggering event to understand available options and timelines.
Reverse mortgage proceeds are generally loan advances rather than earned income, but tax and public-benefit consequences can depend on how funds are used or held. Borrowed funds retained in an account may affect eligibility for means-tested benefits. Consult a tax professional or benefits advisor about your situation. A reverse mortgage is also not the same as a government grant: it is a loan secured by the home, with costs and repayment obligations.
We can help you understand which reverse mortgage options may fit your goals, explain how the process works, and review the costs and responsibilities involved. To begin, gather information about the home, any existing mortgage, your expected plans for the property, and the people who may live there. We can discuss the next steps, including HECM counseling where applicable. Any application, qualification, or approval is subject to credit approval and program guidelines.
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