What Is a Reverse Mortgage?
A reverse mortgage is a loan available to homeowners age 62 and older that allows them to convert a portion of their home equity into cash without selling the home or making monthly mortgage payments. The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA).
How Does It Work?
Unlike a traditional "forward" mortgage where you make monthly payments to the lender, a reverse mortgage pays you. You can receive funds as a lump sum, monthly payments, a line of credit, or a combination of these options. The loan balance grows over time as interest and fees accrue, and is repaid when the last borrower permanently leaves the home.
Who Qualifies?
To be eligible for a HECM reverse mortgage, you must: be at least 62 years old, own your home outright or have a low enough mortgage balance to pay it off with the reverse mortgage proceeds, live in the home as your primary residence, not be delinquent on any federal debt, and complete a HUD-approved counseling session.
How Much Can You Borrow?
The amount you can borrow (your principal limit) depends on three main factors: your age (older borrowers can access more), current interest rates (lower rates mean higher limits), and your home's value (up to the FHA lending limit). Your reverse mortgage advisor can calculate your specific principal limit based on these factors.
Repayment
The loan becomes due when the last borrower (or eligible non-borrowing spouse) permanently leaves the home — whether by passing away, selling the property, or moving out for more than 12 consecutive months. At that point, the loan balance (including accrued interest and fees) is repaid, typically through the sale of the home. Any equity remaining after repayment belongs to you or your heirs.
The Non-Recourse Feature
One of the most important protections of a HECM is that it's a non-recourse loan. Non-recourse loan: when the loan is repaid, you or your heirs won't owe more than the home's value at that time. Heirs who keep the home pay the loan balance or 95% of the appraised value, whichever is less. You still pay property taxes, insurance and upkeep, and live in the home. If the loan balance exceeds the home's value, FHA mortgage insurance covers the difference.
Key Obligations
While you don't make monthly mortgage payments, you must continue to: pay property taxes, maintain homeowners insurance, keep the home in good repair, and live in the home as your primary residence. Failure to meet these obligations could result in the loan becoming due and payable.
Is a Reverse Mortgage Right for You?
A reverse mortgage can be an excellent financial tool for the right homeowner. It's particularly well-suited for retirees who want to eliminate monthly mortgage payments, need to supplement their retirement income, want to establish a growing line of credit as a financial safety net, or need funds for healthcare, home improvements, or other expenses. Consult with a qualified reverse mortgage advisor to evaluate your specific situation.
