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What Is a Reverse Mortgage?
A reverse mortgage is a type of home loan that allows eligible homeowners to borrow against the equity in their home without making monthly mortgage payments. Instead of you paying the lender, the lender advances funds to you based on your home’s equity. The loan balance grows over time and is repaid when the last borrower leaves the home, sells, or passes away.
The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the FHA and regulated by HUD.
Who Reverse Mortgages May Fit
A reverse mortgage may be worth exploring if you:
- Are 62 or older (all borrowers on title must meet the age requirement)
- Own your home outright or have significant equity
- Plan to remain in the home as your primary residence
- Want to supplement retirement income, eliminate a mortgage payment, or fund home improvements
- Have met with an independent HUD-approved counselor (required for HECM loans)
How Funds Can Be Received
HECM borrowers can choose how to receive funds:
- Lump sum (fixed rate only)
- Line of credit (grows over time if unused)
- Monthly payments (term or tenure)
- Combination of the above
What You Still Owe
Even without a monthly mortgage payment, reverse mortgage borrowers are still responsible for:
- Property taxes
- Homeowner’s insurance
- HOA dues (if applicable)
- Basic home maintenance
Failure to maintain these obligations can result in the loan becoming due.
HUD Counseling Requirement
Before applying for a HECM, borrowers are required to complete a counseling session with an independent HUD-approved housing counselor. This counseling is designed to ensure borrowers understand the product, the obligations, and the alternatives.
Benefits
- No monthly mortgage payment required (as long as you remain in the home and meet loan obligations)
- Proceeds are generally not taxable as income (consult a tax advisor)
- Non-recourse loan: you or your heirs won’t owe more than the home is worth at payoff
- Line of credit grows over time if unused (HECM)
Limitations
- Must be 62 or older
- Primary residence only
- Loan balance grows over time, reducing equity
- FHA MIP required on HECMs
- Loan becomes due if you move, sell, or pass away
- Estate planning implications should be discussed with an advisor