A good fit if
- You're 62 or older and plan to stay in your home
- You have significant home equity
- You want to eliminate your monthly mortgage payment or add retirement cash flow
Probably not if
- You plan to move soon
- You can't keep up with property taxes, insurance, and maintenance
- Leaving the home free and clear to heirs is your top priority
How a Reverse Mortgage Works
With a reverse mortgage, the loan balance grows over time instead of shrinking. You don't make a required monthly mortgage payment. Instead, interest, mortgage insurance, and fees are added to the balance. The loan is repaid when the last borrower sells the home, moves out permanently, or passes away, usually from the sale of the home.
Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), insured by the FHA. Private "jumbo" or proprietary reverse mortgages exist for higher-value homes and aren't FHA-insured.
Reverse Mortgage Requirements
- Age: at least one borrower must be 62 or older for a HECM. Some proprietary programs start younger in certain states.
- Equity: enough to pay off any existing mortgage with the reverse mortgage proceeds.
- Occupancy: the home must be your primary residence.
- Property: single-family homes, 2–4 unit homes where you live in one unit, FHA-approved condos, and some manufactured homes.
- Financial assessment: the lender reviews your income, credit, and history of paying property taxes and insurance to confirm you can keep up with them.
- Counseling: a session with an independent, HUD-approved counselor before you apply.
How Much Can You Get?
The amount available, called the principal limit, depends on the age of the youngest borrower or eligible non-borrowing spouse, current interest rates, and the home's value up to the FHA's HECM limit. Older borrowers and lower rates generally mean more is available. Any existing mortgage is paid off first, and the rest is available to you.
Example: a 70-year-old homeowner has a home worth $900,000 and an existing mortgage of $150,000. The reverse mortgage pays off the existing mortgage, so there's no longer a required monthly mortgage payment. The remaining available funds are set up as a line of credit for future needs. The homeowner still pays property taxes, insurance, and upkeep. Figures are illustrative only.
Your Responsibilities
- Live in the home as your primary residence
- Keep paying property taxes, homeowners insurance, and any HOA dues
- Maintain the home in good condition
Not meeting these terms can cause the loan to become due. If the financial assessment shows a risk, the lender may set aside part of the proceeds to pay taxes and insurance for you.
How You Can Receive the Money
- A lump sum
- Monthly payments for a set period or for as long as you live in the home
- A line of credit that can grow over time
- A combination of these
Reverse Mortgage Pros and Cons
Benefits
- No required monthly mortgage payment
- Stay in your home and keep the title
- HECMs are non-recourse: you or your heirs generally won't owe more than the home is worth
- An unused HECM line of credit can grow over time
Tradeoffs
- Upfront costs, including FHA mortgage insurance, can be significant
- The balance grows, leaving less equity for you or your heirs
- You must keep up with taxes, insurance, and maintenance
- It may affect eligibility for some need-based benefits
Counseling Comes First
Before applying for a HECM, you must meet with an independent, HUD-approved counselor. It's a good thing: they'll walk you through costs, alternatives, and how the loan affects your heirs. Include your family in the conversation if you can.
Reverse Mortgage vs. HELOC
A HELOC requires monthly payments and income to qualify, but costs less upfront and leaves more equity. A reverse mortgage doesn't require monthly mortgage payments, which can help on a fixed income. Downsizing or a refinance may also be worth comparing.
Documents You'll Need
- HUD counseling certificate
- Photo ID and proof of age
- Current mortgage statement, if any
- Property tax bills and homeowners insurance declarations page
- Income documents such as Social Security and pension award letters
Reverse Mortgage FAQ
Do I give up ownership of my home?
No. You keep the title. The lender has a lien on the home, just as with a regular mortgage.
What happens to my heirs?
When the loan becomes due, heirs can repay it and keep the home, or sell it. With a HECM, they generally won't owe more than the home is worth.
Can I use a reverse mortgage to buy a home?
Yes. A HECM for Purchase lets you buy a new primary residence with a reverse mortgage, which can be useful when downsizing.
What is the minimum age for a reverse mortgage?
62 for a HECM. Some proprietary reverse mortgages are available at younger ages in certain states.
What if my spouse is younger than 62?
An eligible non-borrowing spouse may be able to stay in the home after the borrower passes away, if HECM requirements are met. Discuss this with your counselor before applying.
Can I get a reverse mortgage if I still have a mortgage?
Yes, if you have enough equity. The existing mortgage is paid off from the reverse mortgage proceeds at closing.
Available for properties in California. A reverse mortgage is a loan. You must live in the home as your primary residence, continue to pay property taxes, homeowners insurance, and HOA dues, and maintain the home. The loan becomes due when the last borrower leaves the home permanently, sells it, or does not meet the loan terms. Interest and fees are added to the balance over time, reducing the equity left. Not affiliated with HUD or FHA. Not a commitment to lend.