Understand reverse mortgages and their responsibilities.

Reverse Mortgages: What Homeowners Should Understand

For many homeowners approaching or in retirement, the house is the largest asset they own. A reverse mortgage is one way to convert some of that equity into usable funds without selling the home or making required monthly principal-and-interest payments, provided loan obligations are met. Taxes, insurance, and maintenance remain the homeowner’s responsibility.

It’s also a product with real complexity and real obligations attached. This guide covers how reverse mortgages work, who they may suit, and the considerations that deserve careful thought before proceeding.

What Is a Reverse Mortgage?

A reverse mortgage is a loan available to older homeowners — generally age 62 or older for the FHA-insured HECM program, though some proprietary products have different age requirements. Instead of making payments to a lender, the homeowner receives funds drawn from home equity.

The loan becomes due when the borrower sells the home, moves out permanently, or passes away. Until then, the borrower keeps title and continues living in the home, provided ongoing obligations are met.

How Funds Are Received

Depending on the program, proceeds may be structured as a lump sum, monthly installments, a line of credit drawn as needed, or a combination.

The amount available depends on the age of the youngest borrower, the appraised home value, current interest rates, and applicable FHA limits for HECM loans. Older borrowers and higher-value homes generally access more, though the calculation is program-specific.

One feature worth understanding: with a HECM line of credit, the unused portion typically grows over time at a rate tied to the loan. Some borrowers open a line early specifically to let that available credit build as a future resource.

The Balance Grows

This is the mechanical heart of the product. Because no payments are being made, interest and fees are added to the balance each month, and that balance compounds. Over a long period, the amount owed can grow substantially — and the equity remaining in the home shrinks correspondingly.

HECM loans are non-recourse. If the balance eventually exceeds the home’s value, neither the borrower nor the estate is responsible for the difference; FHA insurance covers it. When heirs want to keep the property, they generally pay the loan balance or a percentage of the appraised value, whichever is less.

Types of Reverse Mortgages

Home Equity Conversion Mortgage (HECM). FHA-insured and the most common program. Includes required counseling, non-recourse protection, and multiple disbursement options.

Proprietary reverse mortgage. Offered by private lenders, sometimes called a jumbo reverse mortgage. Designed for higher-value homes exceeding FHA limits. Terms and protections vary by lender and are not FHA-insured.

Single-purpose reverse mortgage. Offered through some state, local, or nonprofit programs. Funds are restricted to a specific use such as repairs or property taxes. Typically the lowest-cost option where available, though availability is limited.

Eligibility and Ongoing Obligations

For most reverse mortgages, borrowers must meet the program’s minimum age, occupy the home as a primary residence, hold sufficient equity, and demonstrate the ability to meet ongoing obligations through a financial assessment.

Those obligations continue for the life of the loan:

• Property taxes must stay current
• Homeowners insurance must be maintained
• The home must be kept in reasonable repair
• The borrower must continue occupying the home as a primary residence

Failing on any of these can result in the loan becoming due and, in serious cases, foreclosure. This is the most common way reverse mortgages go wrong, and it deserves emphasis: no monthly mortgage payment does not mean no ongoing cost.

Non-Borrowing Spouses

If one spouse is not on the loan — often because they’re under the age requirement — their protections depend on how the loan is structured and when it was originated. Under current HECM rules, an eligible non-borrowing spouse may be able to remain in the home after the borrower dies, subject to specific conditions being met and maintained.

This is essential to address before closing rather than after. Any couple where one spouse would not be on the loan should raise it directly with the lender and the counselor.

Common Uses

• Paying off an existing mortgage, eliminating that monthly payment
• Healthcare or long-term care costs
• Home modifications supporting aging in place
• Supplementing retirement income
• Establishing a standby line of credit

Considerations That Deserve Weight

Costs are significant. HECM loans include an upfront mortgage insurance premium, an ongoing annual premium, origination fees, closing costs, and servicing fees. These are typically financed into the loan, which means they also accrue interest.

Inheritance is affected. Heirs receive whatever equity remains after the loan is satisfied. For families where leaving the home is a priority, this is a central consideration.

Needs-based benefits may be affected. Reverse mortgage proceeds generally don’t affect Social Security or Medicare, but funds retained in an account can affect eligibility for needs-based programs like Medicaid or SSI. Anyone receiving or anticipating those benefits should consult a benefits specialist or elder law attorney before proceeding.

Moving triggers repayment. If health changes require a move to assisted living, the loan generally becomes due after an extended absence from the home.

Clearing Up Common Misconceptions

The lender does not take ownership. Borrowers keep title as long as loan obligations are met.

Borrowers may remain while loan requirements are met. Occupancy protections depend on compliance with loan terms and applicable borrower or eligible non-borrowing-spouse rules.

Heirs are not personally liable. With a non-recourse HECM, heirs may sell the home to repay the loan, refinance to keep it, or convey the property to the lender. They do not owe a shortfall from their own assets.

Alternatives Worth Comparing

• HELOC or home equity loan. Costs may be lower depending on the terms, and payments are generally required. A HELOC’s unused credit line may be reduced or frozen in permitted circumstances.
• Cash-out refinance. Replaces the existing mortgage with a larger one, with a monthly payment.
• Downsizing. Selling and buying a smaller home preserves more equity, at the cost of leaving.
• Drawing on savings or investments. Using existing assets rather than borrowing.

The Process

1. Counseling. HECM borrowers must complete a session with an independent HUD-approved counselor. Take it seriously — it’s an opportunity to ask questions without sales pressure.
2. Application and financial assessment. The lender reviews your finances and ability to meet ongoing obligations.
3. Appraisal. Establishes current market value.
4. Underwriting and closing. Terms finalized, costs disclosed, documents signed.
5. Funding. Proceeds distributed in the chosen form.

Is It Right for You?

Reverse mortgages tend to suit homeowners who intend to stay in the home long term, hold substantial equity, can comfortably manage taxes, insurance, and upkeep, and have thought through the effect on heirs. They’re a poorer fit for those likely to move within a few years, those whose budget is already strained by property costs, or those for whom preserving equity is the priority.

All financing is subject to underwriting, financial assessment, appraisal, property requirements, and applicable program and lender guidelines. Eligibility depends on borrower qualifications.

This is a decision worth making slowly and with input from people who know your full picture — including family, and where relevant a financial advisor or elder law attorney. We’re glad to explain how these programs work and help you determine whether one may be appropriate for your situation.