Quick Answer:
A reverse mortgage (officially called a Home Equity Conversion Mortgage or HECM) is a loan that allows homeowners age 62 and older to convert part of their home equity into tax-free cash—without monthly mortgage payments. The loan is repaid when you move or pass away. You keep full ownership and can stay in your home for life.
What is a Reverse Mortgage?
A reverse mortgage is exactly what it sounds like: the reverse of a regular mortgage. Instead of making monthly payments to a bank, the bank makes payments to you.
Here's a simple example:
Real-World Example:
- • You're 72 years old
- • Your home is worth $500,000
- • You owe $80,000 on your current mortgage
- • You could get approximately $185,000 in proceeds
What happens:
- ✓ Your $80,000 mortgage gets paid off
- ✓ You receive ~$105,000 in cash (tax-free)
- ✓ No more monthly mortgage payments
- ✓ You keep living in your home
- ✓ You retain full ownership
The formal name for the most common type of reverse mortgage is a Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD).
Why Reverse Mortgages Matter in 2025
Two major trends have converged to make reverse mortgages more relevant than ever:
1. Home Values Are at Historic Highs
According to the S&P CoreLogic Case-Shiller Home Price Index, U.S. home prices have reached their highest levels in history. Many seniors who purchased homes decades ago for $100,000-$200,000 now own properties worth $500,000-$1,000,000 or more.
This unprecedented appreciation means seniors are sitting on massive amounts of home equity—often $300,000 to $800,000 or more—that can be converted into retirement income.
2. Baby Boomer Retirement Has Peaked
According to the Population Reference Bureau, the number of Americans age 65+ has more than doubled since 2000:
- 2000: 35 million Americans age 65+
- 2020: 56 million (60% increase)
- 2025: 62 million (projected peak of Baby Boomer retirement)
Many of these retirees own their homes but face a common challenge: they're "house rich, cash poor."
The Challenge: You worked your whole life, paid off (or nearly paid off) your home, but your retirement savings fell short. Social Security and pension aren't enough. You have $400,000 in home equity but only $50,000 in savings.
The Solution: A reverse mortgage lets you access that $400,000 in equity to supplement your retirement income—without having to sell your home or make monthly payments.
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How Reverse Mortgages Work
To understand reverse mortgages, it helps to first understand how a regular (forward) mortgage works:
Regular Mortgage (Forward Amortization)
- • You borrow $300,000 to buy a home
- • You make monthly payments (~$2,000/month)
- • Each payment includes principal + interest
- • Over time, your loan balance decreases
- • After 30 years, loan is paid off - you own the home free and clear
Reverse Mortgage (Reverse Amortization)
- • You already own your home (or have significant equity)
- • The bank pays YOU (lump sum, monthly payments, or line of credit)
- • You make NO monthly payments
- • Interest accrues on the loan balance over time
- • Your loan balance slowly increases (reverse of regular mortgage)
- • Loan is repaid when you move or pass away
- • You retain full ownership the entire time
The key difference: With a reverse mortgage, you're converting your home equity into cash flow without having to sell your home or make monthly payments.
Types of Reverse Mortgages
1. HECM (Home Equity Conversion Mortgage) - 90% of the Market
This is the most common type of reverse mortgage, representing over 90% of all reverse mortgages originated in the United States.
Key features:
- Government-backed: Insured by FHA, regulated by HUD
- Interest rates: 5-7% (variable or fixed)
- Lending limit: $1,209,750 (2025)
- Protection: You'll never owe more than your home is worth
- Counseling required: Must meet with HUD-approved counselor
Best for: Most homeowners. If your home is worth less than $1.2 million, a HECM is almost always the right choice.
2. Proprietary Reverse Mortgages (Jumbo)
These are private loans offered by banks and mortgage companies, not backed by the government.
Key features:
- Higher limits: $1.5M to $4M+
- More flexible: Some allow borrowers as young as 55
- Higher costs: Interest rates typically 1-2% higher than HECMs
- Less regulation: Not subject to FHA rules
Best for: Homeowners with high-value properties above the HECM limit. If your home is worth $1.5M+, you may get more proceeds from a proprietary product.
3. Single-Purpose Reverse Mortgages
Offered by some state and local government agencies or nonprofits.
Key features:
- Lowest cost: Minimal fees
- Restricted use: Only for specific purposes (property taxes, home repairs)
- Limited availability: Not offered in all states/counties
- Income limits: Often restricted to low-to-moderate income seniors
Best for: Limited situations where you only need money for a specific purpose and qualify for a government assistance program.
Bottom line: 90% of borrowers choose a HECM (government-backed) reverse mortgage. The rest of this guide focuses on HECMs.
Reverse Amortization: A 15-Year Example
One of the biggest concerns people have is: "Won't I use up all my equity and leave nothing for my kids?"
Let's look at a real example based on typical market conditions:
Starting Position:
- • Home value: $1,060,000
- • Borrower age: 70
- • Reverse mortgage amount: $230,000
- • Purpose: Pay off old mortgage + home improvements
- • Assumptions: 4% annual home appreciation, 6% interest rate
| Year | Annual MIP | Annual Interest | Loan Balance | Home Value | Equity to Heirs |
|---|---|---|---|---|---|
| 0 | $0 | $0 | $230,000 | $1,060,000 | $830,000 |
| 1 | $1,150 | $16,100 | $247,250 | $1,102,400 | $855,150 |
| 5 | $1,500 | $21,000 | $332,000 | $1,288,000 | $956,000 |
| 10 | $2,300 | $31,000 | $479,000 | $1,567,000 | $1,088,000 |
| 15 | $3,300 | $45,000 | $691,000 | $1,906,000 | $1,215,000 |
Key Insight: Even after 15 years of living off the reverse mortgage, this family's heirs would inherit $1,215,000 in equity—$385,000 MORE than if they had sold the home today ($830,000).
This assumes 4% annual appreciation, which is actually conservative compared to many markets that have seen 5-8% appreciation over the past 20 years.
This example demonstrates that reverse mortgages don't necessarily "eat up" your equity if your home continues to appreciate over time.
Basic Reverse Mortgage Requirements
To qualify for a HECM reverse mortgage, you must meet these requirements:
Age Requirements
- ✓ At least 62 years old (primary borrower)
- ✓ If married, spouse can be under 62 (listed as "non-borrowing spouse")
- ⚠️ In Texas, BOTH spouses must be 62+ (state-specific rule)
Property Requirements
- ✓ Must be your primary residence (live there 6+ months per year)
- ✓ You must own the home (or have significant equity)
- ✓ Property must meet FHA standards (safe, sound, sanitary)
- ✓ Eligible property types: Single-family home, townhouse, 2-4 unit property (you live in one), FHA-approved condo, manufactured home built after 1976
Financial Requirements
- ✓ Must have ability to pay property taxes and homeowners insurance
- ✓ Must be able to maintain the property
- ✓ Cannot be delinquent on any federal debts (student loans, taxes)
- ✓ Must pass financial assessment (review of income and credit)
Counseling Requirement
All HECM borrowers must complete a counseling session with a HUD-approved counselor. This is a consumer protection measure to ensure you fully understand how reverse mortgages work before proceeding.
Do You Qualify?
Take our free 2-minute quiz to see if you meet the requirements and how much you could get.
Want a More Detailed Estimate?
Our full quiz provides a personalized breakdown including set-asides, disbursement options, and exact loan limits for your area.
Reverse Mortgage Myths vs Reality
Reverse mortgages have been around since 1989, but many misconceptions persist. Let's address the most common myths:
MYTH #1: "The bank will own my house"
❌ MYTH
"If I get a reverse mortgage, I'm giving up ownership of my home to the bank."
✓ REALITY
You retain 100% ownership of your home. Your name stays on the title. A reverse mortgage is simply a loan secured by your home, just like a traditional mortgage.
The Deed of Trust that's recorded gives the lender a lien on the property (the right to be repaid when you sell), but it does NOT transfer ownership. You own and control your home the entire time.
MYTH #2: "My kids won't inherit anything"
❌ MYTH
"When I die, the bank will take my house and my children will get nothing."
✓ REALITY
Your heirs inherit the home and have three options:
- 1. Pay off the loan and keep the home (can refinance to a regular mortgage)
- 2. Sell the home and keep any remaining equity after paying off the loan
- 3. Walk away if the loan balance exceeds home value (no personal liability)
As shown in the 15-year example above, if your home appreciates, your heirs may inherit even MORE equity than if you had never taken a reverse mortgage.
MYTH #3: "I can't get one if I still have a mortgage"
❌ MYTH
"My house isn't paid off, so I can't qualify for a reverse mortgage."
✓ REALITY
60% of reverse mortgage borrowers have an existing mortgage when they apply!
The reverse mortgage proceeds first pay off your existing mortgage, eliminating your monthly payment. You then receive the remaining proceeds in cash.
Example: You owe $120,000 on your mortgage (payment: $1,800/month). You qualify for $220,000 in reverse mortgage proceeds. The $120,000 is paid off automatically, you receive $100,000 in cash, and your $1,800/month payment disappears forever.
→ Read full guide: "Can I Get a Reverse Mortgage if I Still Have a Mortgage?"
MYTH #4: "My equity is safer keeping the house free and clear"
❌ MYTH
"I'm better off keeping my home paid off with no mortgage. That equity is safe."
✓ REALITY
A free-and-clear home is actually MORE vulnerable to financial threats:
- • Lawsuits: If you're sued, your home equity is an asset creditors can pursue
- • Medical bills: Hospital liens can be placed on your property
- • Elder financial abuse: All equity is accessible if someone gains access to your accounts
- • Medicaid recovery: In some states, Medicaid can place liens on your home
With a mortgage on the property (including a reverse mortgage), the lender has a secured interest in the home. This actually PROTECTS your equity because the lender will defend their position against creditors, lawsuits, and liens.
MYTH #5: "I'll be forced to move"
❌ MYTH
"After a certain number of years, the bank will kick me out of my house."
✓ REALITY
You can stay in your home for as long as you live, as long as you:
- • Live in the home as your primary residence (6+ months/year)
- • Keep property taxes and homeowners insurance current
- • Maintain the property in good condition
These are the same obligations you would have even WITHOUT a reverse mortgage. There is no time limit or age limit. You can never "outlive" a reverse mortgage.
Pros and Cons of Reverse Mortgages
Like any financial product, reverse mortgages have advantages and disadvantages. Here's an honest assessment:
✅ Advantages (Pros)
1. Eliminate Monthly Mortgage Payments
This is the #1 reason people choose reverse mortgages. If you currently have a mortgage payment of $1,500-$3,000/month, imagine that cash staying in your pocket. That's $18,000-$36,000 per year in freed-up cash flow.
2. Access Home Equity Without Selling
You can convert your home's value into cash while continuing to live there. No need to downsize or move to a smaller home, different city, or assisted living before you're ready.
3. Tax-Free Proceeds
Reverse mortgage funds are considered loan proceeds, not income. This means:
- Not subject to income tax
- Doesn't affect Social Security benefits
- Doesn't affect Medicare benefits
- (May affect Medicaid in some states - consult specialist)
4. Government-Insured Protection (HECM Only)
FHA insurance means you'll never owe more than your home is worth. Even if the loan balance grows to $500,000 but your home is only worth $400,000 when you pass away, your heirs don't owe the difference. FHA covers it.
5. Flexible Disbursement Options
You can choose how to receive your funds:
- Line of Credit: Access funds as needed (most popular)
- Monthly payments: Guaranteed income for life
- Lump sum: All funds at closing
- Combination: Mix of the above
❌ Disadvantages (Cons)
1. Reduces Inheritance for Heirs
While your heirs may still inherit equity (especially if home appreciates), they will inherit LESS than if you had never taken the reverse mortgage. The loan balance grows over time due to accruing interest.
2. Upfront Costs
Reverse mortgages have significant closing costs:
- Upfront Mortgage Insurance Premium (MIP): 2% of home value
- Origination fee: $2,500-$6,000
- Third-party costs: $5,000-$10,000 (appraisal, title, etc.)
- Total: $10,000-$25,000+
For small loan amounts (under $50,000), these costs may not be worth it.
3. Ongoing Obligations
You're still responsible for:
- Property taxes
- Homeowners insurance
- HOA fees (if applicable)
- Home maintenance and repairs
Failure to meet these obligations can result in default and foreclosure (same as with a regular mortgage).
4. May Affect Needs-Based Benefits
While reverse mortgage proceeds don't affect Social Security or Medicare, they MAY affect Medicaid eligibility if you don't spend them within the same month. Consult a benefits specialist if you receive Medicaid, SSI, or other needs-based assistance.
5. Complexity
Reverse mortgages are more complex than traditional mortgages. There are multiple disbursement options, set-aside calculations, and financial assessment requirements. This complexity is why HUD-approved counseling is mandatory.
Is a Reverse Mortgage Right for You?
Based on the information above, here's who tends to benefit most from reverse mortgages:
You May Be a Good Candidate If:
- ✓ You're 62+ years old
- ✓ You have significant home equity (60%+ preferred)
- ✓ You want to eliminate monthly mortgage payments
- ✓ You need to supplement retirement income
- ✓ You plan to stay in your home for at least 5-7 years
- ✓ You can afford property taxes, insurance, and maintenance
- ✓ You're not overly concerned about leaving a large inheritance
You May NOT Be a Good Candidate If:
- ❌ You plan to move in the next 2-3 years
- ❌ Leaving maximum inheritance is your top priority
- ❌ You have sufficient retirement income and don't need funds
- ❌ You cannot afford property taxes and insurance
- ❌ Your home needs major repairs and you can't afford them
Next Steps
Now that you understand what reverse mortgages are and how they work, here's how to move forward:
Step 1: Calculate Your Estimated Proceeds
Use our free calculator to see how much you could qualify for based on your age, home value, and mortgage balance.
→ Free Reverse Mortgage Calculator
Step 2: Review Requirements
Make sure you meet all the eligibility criteria before applying.
→ Complete Requirements Checklist
Step 3: Compare Your Options
Understand how reverse mortgages compare to alternatives like HELOCs, selling your home, or traditional refinancing.
→ Reverse Mortgage vs HELOC Comparison
Step 4: Get a Personalized Estimate
Our detailed quiz asks 22 questions to give you an exact estimate including closing costs, disbursement options, and personalized recommendations.