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Reverse mortgages: how they really work

For homeowners 62 and older who want to stay home with no monthly mortgage payment. The myths, the facts, and what to watch for.

A reverse mortgage lets homeowners 62 and older turn part of their home equity into cash without a monthly mortgage payment. The most common type is the HECM, the Home Equity Conversion Mortgage, which is insured by the FHA. It is one of the most misunderstood loans in America, so this page starts with the myths.

Myths and facts

Myth: The bank takes your house.Fact: You keep the title. You own the home, just as you do now. The loan is repaid when the last borrower dies, sells, or moves out for good. You can live there as long as you keep the loan's obligations.
Myth: My kids will be stuck with the debt.Fact: A HECM is non-recourse. Neither you nor your heirs will ever owe more than the home is worth when the loan is repaid. Heirs can keep the home by paying the lesser of the loan balance or 95% of its appraised value, or sell it and keep whatever equity is left.
Myth: No payments means no responsibilities.Fact: You must keep paying property taxes, homeowners insurance and HOA dues, keep up the home, and live there as your main home. Falling behind on these is the real way people lose a home with a reverse mortgage, and it is preventable.
Myth: You can't get one if you still owe on your home.Fact: Most people who get a reverse mortgage still have a mortgage. The reverse mortgage pays it off, and that monthly payment goes away.
Myth: My spouse will be forced out.Fact: A co-borrowing spouse stays. A spouse not on the loan may be able to stay as an Eligible Non-Borrowing Spouse under HUD's rules. Plan this up front, especially if one spouse is under 62.
Myth: It's only for people who are out of money.Fact: Many people use a reverse mortgage as a planning tool: removing a mortgage payment in retirement, holding a line of credit for later, or buying a home that fits retirement with HECM for Purchase.

How you can receive the money

  • Line of credit. Draw when you need it. Unused HECM credit lines grow over time.
  • Monthly payments. A set amount each month for as long as you live in the home, or for a fixed period.
  • Lump sum. All at once, usually to pay off an existing mortgage.
  • A combination of the above.

What it really costs

A reverse mortgage has upfront costs, including FHA mortgage insurance, and the loan balance grows over time because interest and mortgage insurance are added each month instead of paid. That means less equity left over later. For many owners that trade is worth it. For someone planning to move in a few years, it usually is not.

Pitfalls to watch for

Taxes and insuranceBudget for property taxes and insurance for as long as you live there. Some loans set aside funds to pay them for you.
Other people living in the homeAdult children or relatives who are not borrowers do not have a right to stay after the loan comes due. Talk about this as a family before closing.
Moving soon after closingUpfront costs make a reverse mortgage expensive if you sell within a few years.
Need-based benefitsReverse mortgage money is generally not counted as income, but money left sitting in the bank can affect programs like Medicaid or SSI. Ask a benefits advisor before taking a large lump sum.
High-pressure salesBe wary of anyone pushing you to use the money for an investment, an annuity or a product they sell. The decision should be yours, made after counseling.
Before a HECM application you will meet with an independent, HUD-approved counselor. Bring your questions and, if you like, your family.

Who a reverse mortgage fits

  • Homeowners 62 and older who plan to stay in their home for the long term.
  • People who want to remove a monthly mortgage payment in retirement.
  • Owners who want a growing line of credit for future expenses.
  • Buyers 62 and older who want to purchase a home without a monthly mortgage payment.

For higher-value homes, private (jumbo) reverse programs may allow more than the FHA limit. Ask which type fits your home.

Questions people ask

Does the bank take my house with a reverse mortgage?

No. You keep the title and ownership of your home. The loan comes due when the last borrower dies, sells the home, or moves out, including living in a care facility for more than 12 consecutive months. As long as you live there and keep up taxes, insurance and maintenance, you stay.

Will my children inherit the debt?

A HECM reverse mortgage is non-recourse. Neither you nor your heirs owe more than the home is worth when the loan is repaid. Heirs who want to keep the home can pay the lesser of the loan balance or 95% of the home's appraised value. Heirs who sell keep any equity left after the loan is paid.

How old do I have to be?

For a HECM, the FHA-insured reverse mortgage, the youngest borrower must be at least 62. Some private reverse programs have different rules.

Can I get a reverse mortgage if I still have a mortgage?

Yes. The reverse mortgage pays off the existing mortgage first, which removes that monthly payment. The remaining equity is available to you.

What happens to my spouse if they are not on the loan?

A co-borrower can stay in the home. A spouse who is not on the loan may be able to stay as an Eligible Non-Borrowing Spouse if they meet HUD's requirements, but they cannot receive loan funds. Couples with a younger spouse should plan this before closing.

Do I have to make monthly payments?

No monthly mortgage payment is required. You still must pay property taxes, homeowners insurance and any HOA dues, keep the home in good repair, and live there as your primary residence.

Can I buy a home with a reverse mortgage?

Yes. HECM for Purchase lets buyers 62 and older buy a home with a reverse mortgage and a down payment, with no monthly mortgage payment afterward.

Is counseling required?

Yes. Before applying for a HECM you must meet with an independent, HUD-approved counselor who explains the loan, its costs and the alternatives.

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