What a Reverse Mortgage Loan Is
A reverse mortgage loan is a home loan for homeowners who are 62 or older. Instead of paying the lender each month, the lender pays you, drawing on the equity you have already built in the home. The loan is secured by the property and repaid later, typically when the home is sold or the last borrower no longer lives there.
You keep the title to your home. A reverse mortgage does not transfer ownership to the lender, and you remain responsible for property taxes, homeowners insurance, association dues, and routine upkeep. The most common version is the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration and administered by the Department of Housing and Urban Development.
The word reverse describes the direction of the payments, not a promise of free money. It is still a debt secured by your home, and the balance usually grows instead of shrinking. The Consumer Financial Protection Bureau and HUD both publish free borrower guides worth reading before you talk to a lender.
Who Qualifies and How Much You Can Borrow
The basic eligibility rules for a HECM are straightforward. You must be 62 or older, the home must be your principal residence, and the property must meet program standards. Condominiums and manufactured homes can qualify, but the rules differ by property type, so confirm eligibility with the lender early rather than after you have paid for an appraisal.
The amount available is not a simple percentage of your equity. It depends on the age of the youngest borrower on the loan, current interest rates, the appraised value of the home, and the FHA lending limit for your area. As a general principle, a younger borrower can access less, because the loan is expected to stay open longer.
Lenders also run a financial assessment. They review income, credit history, and ongoing housing costs to judge whether you can keep paying taxes and insurance. If the review shows a shortfall, the lender may require a set-aside from the loan proceeds to cover those obligations, or it may decline the application. Understanding your debt-to-income ratio before you apply can help you anticipate how that review will go.
How You Receive the Money
Most HECM borrowers choose among several payout structures, and some combine two of them.
- Lump sum - one payment at closing, usually paired with a fixed interest rate.
- Term payments - equal monthly payments for a fixed number of months you select.
- Tenure payments - equal monthly payments for as long as you live in the home.
- Line of credit - you draw funds as needed, up to an approved limit.
- Combination - a line of credit plus scheduled monthly payments.
The structure you pick shapes how fast the balance grows and how much flexibility you keep. A line of credit leaves funds available for later expenses, and on many HECM loans the unused portion grows over time, which can raise the amount available down the road. Scheduled payments provide predictable income but draw the balance down sooner. Interest accrues on what you have actually borrowed, so larger draws generally mean a faster-growing balance.
Costs and How the Balance Grows
It helps to compare a reverse mortgage with the forward mortgage most people already know.
| Feature | Forward mortgage | Reverse mortgage (HECM) |
|---|---|---|
| Direction of payments | You pay the lender monthly | The lender pays you |
| Required monthly mortgage payment | Yes | Generally no |
| Loan balance over time | Falls as you pay | Grows as interest and fees accrue |
| Repayment trigger | Set amortization schedule | Sale, permanent move out, or death of the last borrower |
| Recourse | Deficiency judgment possible in some states | Non-recourse limit tied to home value under HECM rules |
Costs include an origination fee, closing costs, an initial and annual mortgage insurance premium, servicing fees, and interest. Some of these are financed into the loan rather than paid in cash, which preserves your savings but increases the balance you eventually owe. Reverse mortgages are often described as expensive for that reason, and the CFPB mortgage tools are a useful place to compare the total cost with alternatives. Closing costs on a reverse mortgage work much like those on a home equity loan, so it pays to review what is typically charged before you compare offers.
Counseling and Ongoing Obligations
Before you can close a HECM, you must complete counseling with a HUD-approved counselor. The counselor is independent of the lender and is required to walk through costs, alternatives, and the long-term consequences of the loan. Treat that session as a decision point rather than a formality, because it is designed to surface problems before you sign.
After closing, you must keep paying property taxes, homeowners insurance, and any association dues, and you must keep the home in reasonable repair. Missing those obligations can make the loan due and payable even though you never missed a mortgage payment. Because that risk is easy to overlook, many borrowers use a set-aside account funded at closing to cover taxes and insurance automatically. If you are unsure how a set-aside works, ask the counselor to explain it in writing.
The CFPB resources on owning a home also cover the ongoing costs that stay with you no matter how the loan is structured.
Repayment, Non-Recourse, and Heirs
A reverse mortgage becomes due when the last borrower sells the home, permanently moves out, or dies. At that point the loan must be repaid, usually by selling the property.
HECM loans are non-recourse, meaning the lender generally cannot collect more than the home is worth. If the balance exceeds the home value, neither the borrower nor the estate owes the difference, and FHA insurance covers the lender's loss. Heirs who want to keep the home can typically repay the balance or purchase the property for an amount set under HUD rules that is lower than the balance when the balance exceeds the appraised value. If heirs take no action, the lender may foreclose, but any equity remaining after the loan is paid belongs to the estate.
Some surviving spouses who are not named on the loan have protections under HUD rules, provided they were married to the borrower and meet the program conditions. Those protections are technical, so consult a HUD-approved counselor or a housing attorney before assuming they apply.
Alternatives, Scams, and Steps Before You Apply
A reverse mortgage is one way to use home equity, not the only one. A home equity loan or HELOC and a second mortgage both let you borrow against equity, though both require monthly payments. Selling and moving to a smaller or less expensive home releases equity without adding debt. Comparing those options is part of why counseling is required.
Be wary of anyone who pushes a reverse mortgage as a way to fund an investment, an annuity, or a product that the same person sells. The Federal Trade Commission notes that these arrangements can put both the home and the money at risk, and that legitimate lenders do not promise that a loan will eliminate all financial worry.
- Complete HUD-approved counseling and keep the certificate.
- Compare the reverse mortgage with a HELOC, a home equity loan, and a sale.
- Check how the loan would affect property taxes, insurance, and any income-tested benefits.
- Request written disclosures from more than one lender and compare them side by side.
- Verify the originator through the NMLS Consumer Access database.
- Review the repayment terms with the people who will handle your estate and put the plan in writing.