What Is a Reverse Mortgage and Who Is It For?

For many retirees, a home is more than a shelter—it’s a reservoir of lifetime savings.

A reverse mortgage taps into that equity, providing financial flexibility when monthly budgets tighten or unexpected expenses arise.

Understanding the Basics of Reverse Mortgages

A reverse mortgage is a loan secured by a home that lets homeowners aged 62 or older convert part of their built-up equity into cash.

Unlike a traditional mortgage, where you make payments and your balance decreases, with a reverse mortgage the lender pays you, causing your loan balance to grow over time.

Borrowers are not required to make monthly mortgage payments, but they must continue paying property taxes, insurance, and maintain the home to avoid default and foreclosure.

Reverse mortgage proceeds are generally treated as loan proceeds, not taxable income, and they are typically structured as non-recourse loans with built-in protections, meaning neither the borrower nor their estate owes more than the home’s value at repayment.

Exploring Different Types of Reverse Mortgages

• HECM (Home Equity Conversion Mortgage) – The most common FHA-insured product, offering federal protections, counseling requirements, and flexible use for bills, healthcare, or home repairs.
• Proprietary or “Jumbo” Reverse Mortgages – Private lender-backed loans with higher borrowing limits, ideal for high-value homes but with fewer government safeguards.
• Single-Purpose Reverse Mortgages – Low-cost options from state or nonprofit agencies, restricted to specific uses such as property tax payments or essential repairs.

Who Qualifies for a Reverse Mortgage?

Reverse mortgages are not for everyone. They require careful planning and meeting strict criteria to protect both borrower and lender interests.

• Minimum age of 62 for the borrower (the youngest borrower’s age determines eligibility for joint applications).
• The home must be the borrower’s primary residence; vacation properties and rentals are not eligible.
• Substantial equity in the home—typically at least 50%; any existing mortgage must be paid off at closing, usually with reverse mortgage proceeds.
• Completion of a session with a HUD-approved housing counselor for FHA-insured HECM loans, ensuring borrowers understand costs, responsibilities, and alternatives.

How Funds Are Received and Used

Borrowers can choose from several disbursement options to match their financial needs and goals.

• Lump Sum – A one-time payment available when choosing a fixed interest rate, ideal for large, immediate expenses.
• Monthly Payments (Term or Tenure) – Fixed payments for a set term or for life, providing steady supplemental income.
• Line of Credit – Flexible access to funds as needed, with an unused credit line that can grow over time due to the credit line growth feature.

Types of Reverse Mortgages Compared

Costs, Fees, and Critical Considerations

Reverse mortgages come with various costs that affect the loan balance and the home’s equity over time.

Interest can be fixed or adjustable and is compounded monthly, leading to negative amortization as interest is added to the principal.

For HECM loans, borrowers face:

• Initial Mortgage Insurance Premium (MIP) of 2% of the home’s appraised value or FHA limit.
• Annual MIP of 0.5% of the outstanding loan balance, added monthly.
• Origination fee: Greater of $2,500 or a tiered percentage of the home’s value, capped at $6,000.

Additional costs include servicing fees, third-party closing costs (appraisal, title search, insurance), and potential counseling fees, though many agencies subsidize these expenses.

Repayment and Responsibilities

The reverse mortgage becomes due when a maturity event occurs, such as the borrower moving out, selling the home, or passing away.

Borrowers and heirs must repay the loan balance—typically by selling the home. If the balance exceeds the home’s value, the non-recourse feature ensures no additional assets are at risk.

Maintaining a clear understanding of repayment triggers and ongoing homeowner obligations is essential for long-term security and peace of mind.

Is a Reverse Mortgage Right for You?

A reverse mortgage can be a powerful tool to enhance retirement security, but it demands thoughtful consideration.

Ask yourself these questions:

• Do you need steady supplemental income or a flexible line of credit?
• Can you continue paying property taxes, insurance, and upkeep?
• Are you comfortable with your heirs inheriting a home with a growing loan balance?

Consulting with a qualified financial advisor and a HUD-approved counselor can help you weigh the benefits against costs, ensuring this strategy aligns with your retirement vision.

With careful planning and professional guidance, a reverse mortgage can transform your home’s equity into a source of stability and opportunity, empowering you to pursue your later-life goals with confidence.