Loan Programs

Reverse Mortgage Guide

A comprehensive guide to reverse mortgages for homeowners age 62 and older, including how they work, costs, and alternatives.

NMHL Team2026-02-0513 min read

What Is a Reverse Mortgage?

A reverse mortgage is a loan that allows homeowners aged 62 and older to convert a portion of their home equity into cash without selling their home or making monthly mortgage payments. Instead of making payments to a lender as with a traditional mortgage, the lender makes payments to you. The loan balance grows over time as interest and fees accumulate, and repayment is deferred until the homeowner sells the home, moves out permanently, or passes away. The most common type of reverse mortgage is the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration. HECMs make up over 90 percent of all reverse mortgages and offer important consumer protections, including limits on fees, required counseling, and a guarantee that you will never owe more than the home is worth. Proprietary reverse mortgages, offered by private lenders, are available for higher-value homes that exceed FHA lending limits. Reverse mortgages can provide critical financial relief for retirees who are house-rich but cash-poor, helping them cover living expenses, healthcare costs, or home repairs while remaining in their homes.

With a reverse mortgage, you retain ownership of your home. The lender does not take title to your property. You must continue to pay property taxes, homeowners insurance, and maintain the home.

Key Tips

  • Reverse mortgage counseling from a HUD-approved agency is mandatory before applying
  • Consider how a reverse mortgage will affect your estate and heirs
  • Compare HECM and proprietary reverse mortgage options if your home is high-value

How Reverse Mortgages Work

Reverse mortgages offer several ways to receive funds. You can choose a lump sum payment, a line of credit, fixed monthly payments for a set period or for as long as you live in the home, or a combination of these options. The amount you can borrow depends on your age, the appraised value of your home, current interest rates, and the specific reverse mortgage program. Generally, the older you are and the more your home is worth, the more you can borrow. A key feature of HECM reverse mortgages is the non-recourse provision. This means that when the loan comes due, you or your heirs will never owe more than the home is worth at the time of sale, even if the loan balance has grown larger. If the home sells for more than the loan balance, the remaining equity goes to you or your heirs. The line of credit option has a unique advantage: the unused portion grows over time at the same rate as the loan balance, effectively giving you access to more funds the longer you wait to use them. This growth feature is guaranteed regardless of what happens to your home value. Interest on a reverse mortgage is not deductible until the loan is actually paid off.

The HECM line of credit grows over time, meaning your available funds increase even if your home value does not. This feature makes the line of credit option especially attractive for long-term planning.

Key Tips

  • The line of credit option provides the most flexibility and growth potential
  • Monthly payment options provide steady income but limit access to remaining equity
  • Lump sum payments are only available with fixed-rate HECMs

Eligibility and Requirements

To qualify for an HECM reverse mortgage, you must meet several requirements. You must be at least 62 years old, and the home must be your primary residence. Eligible property types include single-family homes, two-to-four unit properties where you occupy one unit, HUD-approved condominiums, and certain manufactured homes meeting FHA standards. You must either own your home outright or have a low enough mortgage balance that it can be paid off with the reverse mortgage proceeds at closing. There is no credit score minimum for HECMs, but lenders conduct a financial assessment to ensure you can meet ongoing obligations like property taxes, insurance, and maintenance. If there are concerns about your ability to cover these costs, the lender may set aside a portion of the loan proceeds in a Life Expectancy Set Aside to pay future taxes and insurance. You are required to complete counseling with a HUD-approved reverse mortgage counselor before applying. This session covers how reverse mortgages work, costs involved, alternatives to consider, and your obligations as a borrower. The counseling protects you from making an uninformed decision and is available in person or by phone at little or no cost.

Key Tips

  • Complete HUD counseling early in the process to understand your options fully
  • Ensure you can continue paying property taxes and insurance for the life of the loan
  • If your spouse is under 62, discuss protections for non-borrowing spouses with your counselor

Costs and Fees

Reverse mortgages carry several costs that borrowers should understand before proceeding. The initial mortgage insurance premium for an HECM is 2 percent of the appraised value of the home or the FHA lending limit, whichever is less. An annual mortgage insurance premium of 0.5 percent of the outstanding loan balance is also charged and added to the loan balance over time. Origination fees are capped by FHA at $6,000 for most homes, calculated as the greater of $2,500 or 2 percent of the first $200,000 of home value plus 1 percent of the value above $200,000. Third-party closing costs include the appraisal, title search, title insurance, recording fees, and any required repairs. Servicing fees may also apply, typically $25 to $35 per month. The interest rate on a reverse mortgage can be fixed or variable. Fixed rates are only available with the lump sum payment option, while variable rates apply to all other payment options. Most of these costs can be financed into the loan balance rather than paid out of pocket, but this reduces the amount of equity available to you. While the upfront costs of a reverse mortgage are higher than those of a HELOC or home equity loan, the absence of monthly payments can provide significant long-term savings for retirees on fixed incomes.

Most reverse mortgage costs can be rolled into the loan balance, but this reduces your available equity. Understand the total cost over time, not just the upfront fees.

Key Tips

  • Request a detailed cost breakdown from your lender before committing
  • Compare costs from at least two reverse mortgage lenders
  • Ask about lender credits that may reduce your upfront costs

Alternatives to Consider

Before committing to a reverse mortgage, explore alternative options that might better suit your situation. A home equity line of credit may provide similar access to your equity with lower upfront costs and the flexibility to make interest-only payments during the draw period. However, HELOCs require monthly payments that a reverse mortgage does not. Downsizing to a smaller, less expensive home can free up equity while reducing property taxes, insurance, maintenance costs, and utility bills. Cash-out refinancing replaces your existing mortgage with a larger one and gives you the difference in cash, but it requires monthly payments and qualification based on income and credit. Property tax deferral programs are available in many states for seniors, allowing eligible homeowners to defer property taxes until the home is sold. Government assistance programs may help cover healthcare costs, home repairs, or utility bills without borrowing against your home. Some families establish private reverse mortgages where family members effectively purchase the home and allow the senior to remain living there. Carefully weigh the costs and benefits of each option with a financial advisor who understands your complete financial picture before making a decision.

Key Tips

  • Consult with a financial advisor who is not affiliated with a reverse mortgage lender
  • Research state and local programs for senior homeowners before borrowing
  • Consider the long-term impact on your estate and heirs with any option you choose
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Home Equity Guide

Learn about building and leveraging your home equity.

Mortgage Refinancing Guide

Compare reverse mortgages with cash-out refinancing options.

Understanding Mortgage Rates

Learn how interest rates impact reverse mortgage costs.

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Frequently Asked Questions

Yes, you retain full ownership and title to your home with a reverse mortgage. The lender has a lien on the property, just like with a traditional mortgage, but you remain the owner. You must continue to live in the home as your primary residence, pay property taxes and insurance, and maintain the property.

When the last surviving borrower passes away, the loan becomes due. Heirs have several options: they can sell the home and use the proceeds to repay the loan, keeping any remaining equity. They can refinance the reverse mortgage into a traditional mortgage to keep the home. Or they can simply turn over the deed to the lender. If the home is worth less than the loan balance, heirs owe nothing beyond the home value due to FHA insurance.

You can lose your home if you fail to meet your obligations, which include living in the home as your primary residence, paying property taxes and homeowners insurance, and maintaining the property in reasonable condition. Moving to a nursing home or assisted living facility for more than 12 consecutive months is also considered leaving the home, which triggers repayment.

The amount depends on your age, home value, current interest rates, and the FHA lending limit. Generally, the older you are and the more your home is worth, the more you can receive. As a rough estimate, borrowers typically access 40 to 60 percent of their home value through a reverse mortgage. A reverse mortgage calculator or HUD-approved counselor can provide a specific estimate.

No, reverse mortgage proceeds are not considered taxable income because they are loan advances, not earnings. However, the interest paid on a reverse mortgage is not deductible until the loan is actually repaid. Reverse mortgage proceeds generally do not affect Social Security or Medicare benefits, but they may impact Medicaid eligibility if not spent within the same month received.

Related Resources

Home Equity Guide

Learn about building and leveraging your home equity.

Mortgage Refinancing Guide

Compare reverse mortgages with cash-out refinancing options.

Understanding Mortgage Rates

Learn how interest rates impact reverse mortgage costs.

Reverse Mortgages

For homeowners 62 and older, reverse mortgages allow you to access your home equity without monthly payments. Stay in your home while receiving funds as a lump sum, line of credit, or monthly payments.

Home Equity Loans

Access the equity in your home with a fixed-rate home equity loan. Get a lump sum with predictable monthly payments for renovations, debt consolidation, or major expenses.

Cash Out Refinance

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