A reverse mortgage lets homeowners 62 and older convert home equity into cash without selling their home or making monthly mortgage payments. The loan is repaid when you sell, move out, or pass away. For some retirees on fixed incomes, it can provide meaningful financial flexibility. For others, the costs and trade-offs make it the wrong choice. This page explains how reverse mortgages work, what they cost, and when they make sense.
How Reverse Mortgages Work
The most common reverse mortgage is the Home Equity Conversion Mortgage (HECM), insured by the federal government through the FHA. You can receive funds as a lump sum, a line of credit, monthly payments, or a combination. No monthly payment is required as long as the home remains your primary residence.
Who Qualifies
You must be at least 62 years old, own the home outright or have substantial equity, and use it as your primary residence. You must also complete a HUD-approved counseling session before the loan closes. A spouse under 62 may remain in the home but their protections depend on how the loan is structured.
What You Can Borrow
The amount you can borrow depends on your age, the home’s appraised value, current interest rates, and the loan limit set by FHA. Generally, the older you are and the more equity you have, the more you can access. A reverse mortgage calculator or HUD-approved counselor can give you a specific estimate.
Costs and Fees
Reverse mortgages are not cheap. Upfront costs typically include an origination fee, FHA mortgage insurance premium, appraisal, and closing costs — often $10,000 to $15,000 or more. Interest accrues on the loan balance over time, reducing the equity left for heirs. These costs are usually rolled into the loan rather than paid out of pocket.
Repayment
The loan becomes due when you sell the home, permanently move out, or pass away. Your heirs can repay the loan and keep the home, or sell the home and keep any remaining equity. If the home sells for less than the loan balance, FHA insurance covers the difference — you or your heirs are not personally liable for the shortfall.
Ongoing Obligations
You must continue paying property taxes, homeowners insurance, and HOA fees. You must also maintain the home in reasonable condition. Failure to meet these obligations can trigger a default and potential foreclosure — this is one of the more common ways reverse mortgages go wrong for homeowners.
Alternatives to Consider
Before pursuing a reverse mortgage, consider whether downsizing, a home equity line of credit (HELOC), or tapping savings might serve you better. For homeowners with pressing short-term needs, a HELOC may cost less. For those who want to simplify and reduce costs, downsizing may free up more equity with fewer ongoing obligations.
Who This Page Is For
- Homeowners 62 or older who want to access home equity without selling
- Retirees on fixed income whose home is their largest asset
- People who want to supplement Social Security or cover healthcare costs
- Anyone evaluating a reverse mortgage and wanting to understand the true costs and trade-offs
- Heirs or family members helping an older parent think through the decision
What to Do Next
- Contact a HUD-approved reverse mortgage counselor — counseling is required before a HECM closes and it’s free or low-cost; find one at hud.gov
- Get a no-obligation estimate from at least two lenders and compare total loan costs, not just the interest rate
- Review your ongoing obligations — confirm you can continue paying property taxes, insurance, and maintenance before committing
- Use the Benefits Finder to check whether you qualify for assistance programs that might reduce the need for a reverse mortgage
- Read the housing articles below for more on home equity options, property tax relief, and downsizing as alternatives
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