Reverse Mortgages Explained: How They Work and Who They Suit
A reverse mortgage lets homeowners 62 and older turn part of their home equity into cash without monthly loan payments. Here's how the federally insured HECM works, the ways you can take the money, the costs, what you still have to pay, what happens to your heirs and the risks to weigh.
By Pond.com editors Updated 3 min read
Quick answer
- A reverse mortgage is a loan for homeowners 62 and older that's repaid when you sell, move out for good or die, not month by month.
- Most are federally insured Home Equity Conversion Mortgages (HECMs), which require a counseling session first.
- You must keep living in the home and keep paying property taxes, insurance and upkeep, or the loan can become due.
- The balance grows over time as interest and fees are added, leaving less equity for you or your heirs.
- You or your heirs never owe more than the home is worth when it's sold.
For many older homeowners, most of their wealth is tied up in their home. A reverse mortgage can turn some of that into cash for living costs, repairs or care, while you stay in the house. It's a big decision, though, with real costs and long-term effects on what you leave behind.
This article is general information, not financial or legal advice. Talk to a HUD-approved counselor and, ideally, your family before you decide.
How it works
With a normal mortgage, you make payments and your debt shrinks. With a reverse mortgage, the lender pays you, and your debt grows as interest and fees are added. Nothing is due until the last borrower sells, moves out for more than 12 months in a row, or dies.
Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), insured by the Federal Housing Administration. To qualify you must:
- Be 62 or older.
- Own your home outright or have a lot of equity; any existing mortgage is paid off from the new loan.
- Live there as your main home.
- Complete a counseling session with a HUD-approved counselor.
- Show you can keep paying property taxes, insurance and upkeep.
How much you can borrow depends on your age, the interest rate and your home's value, up to a limit of $1,249,125 in 2026. Older borrowers can usually borrow more.
How you can take the money
| Option | How it works |
|---|---|
| Line of credit | Draw money when you need it; the unused part grows over time |
| Monthly payments | Fixed payments for as long as you live in the home, or for a set number of years |
| Lump sum | All at once, usually with a fixed rate |
| Combination | For example, a line of credit plus monthly payments |
The costs
- Mortgage insurance: 2% of the home's value (up to the limit) at closing, plus 0.5% of the balance a year.
- Origination fee, capped by HUD, plus usual closing costs like an appraisal and title insurance.
- Interest, added to the balance every month.
Most costs can be paid from the loan, but they reduce what's left for you.
Spouses and heirs
- A younger spouse who isn't a borrower may be able to stay in the home after the borrower dies, if they were named in the loan documents. Make sure both of you understand this before signing.
- Heirs can keep the home by repaying the loan, or sell it and keep anything above the balance. A HECM is "non-recourse," so no one owes more than the home is worth.
Pros and cons
| Pros | Cons |
|---|---|
| No monthly loan payments | Balance grows, leaving less equity |
| Stay in your home | High upfront costs |
| Money isn't taxed as income | Loan comes due if you move into care for over a year |
| Line of credit can grow over time | Can affect Medicaid or SSI eligibility |
Alternatives to consider
- Downsizing to a smaller, cheaper home.
- A home equity loan or HELOC, if you can afford monthly payments. See home equity loans and HELOCs.
- State and local programs that defer property taxes or help with repairs for older homeowners.
Common questions
Yes, if you don't meet the loan terms, such as paying property taxes and homeowners insurance, keeping the home in good repair and living there as your main home. Missing these can make the loan due. Budget for these costs before you sign.
The loan becomes due. Heirs can repay it, usually by selling the home or refinancing, and keep anything left over. If the home is worth less than the balance, heirs can pay 95% of its appraised value to keep it, or simply sell it, and the insurance covers the shortfall.
No. Money from a reverse mortgage is loan proceeds, not income, so it isn't taxed. It generally doesn't affect Social Security or Medicare, but it can affect means-tested benefits like Medicaid or SSI if you hold on to the money.