Reverse Mortgages

A reverse mortgage allows homeowners 62 and older to convert part of their home equity into cash without selling their home or making monthly mortgage payments.

Unlike a traditional mortgage where you make payments to the lender, with a reverse mortgage, the lender makes payments to you. The loan is repaid when you sell the home, move out permanently, or pass away.

The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the FHA. HECMs offer consumer protections and are available through FHA-approved lenders.

Eligibility: You must be 62 or older, own your home outright or have a low mortgage balance, live in the home as your primary residence, and complete HUD counseling.

Loan Amount: Based on your age, home value, interest rates, and amount owed on existing mortgages. Older borrowers and higher home values mean larger loan amounts.

Payment Options: Receive funds as a lump sum, monthly payments, line of credit, or combination. The line of credit option grows over time.

No Monthly Payments: You don't make monthly principal and interest payments. The loan balance grows over time as interest accumulates.

Repayment: Loan becomes due when the last borrower sells the home, moves out permanently, or passes away. Heirs can repay and keep the home or sell to pay off the loan.

Upfront Costs: Origination fee (up to $6,000), FHA mortgage insurance premium (2% of home value), appraisal, title insurance, and other closing costs.

Ongoing Costs: Annual mortgage insurance (0.5% of loan balance), interest charges, and servicing fees. These are added to the loan balance.

Interest Rates: Available as fixed or adjustable. Fixed rates require lump sum payment; adjustable rates allow more payment flexibility.

While costs are higher than traditional mortgages, they can be financed into the loan. For retirees with limited income but significant home equity, the benefits often outweigh the costs.

Compare multiple lenders—costs and rates can vary significantly between reverse mortgage lenders.

Non-Recourse Loan: You or your heirs will never owe more than the home's value, even if the loan balance grows larger.

Stay in Your Home: You can live in your home for life as long as you pay property taxes, insurance, and maintain the property.

Spouse Protection: Non-borrowing spouses can remain in the home if the borrowing spouse passes away, thanks to recent rule changes.

FHA Insurance: HECM loans are insured by FHA, protecting you if the lender goes out of business.

Required Counseling: HUD-approved counseling ensures you understand how reverse mortgages work before committing.

Right to Cancel: You have 3 business days after closing to cancel the loan for any reason.

Good Fit: Seniors who want to stay in their home long-term, need additional retirement income, have limited other assets, and want to eliminate monthly mortgage payments.

Consider Alternatives: Home equity loans or HELOCs (if you can afford payments), downsizing to a less expensive home, or selling and investing proceeds.

Impact on Heirs: Reverse mortgages reduce the equity you can leave to heirs. Discuss with family members before proceeding.

Medicare/Medicaid: Reverse mortgage proceeds don't affect Medicare, but could impact Medicaid eligibility if not spent within the month received.

Long-Term Care: If you move to assisted living or nursing home for more than 12 months, the loan becomes due.

Professional Advice: Consult with a financial advisor to see if a reverse mortgage fits your overall retirement plan.