What Is a Reverse Mortgage?
A reverse mortgage uses your home as collateral to access equity. This guide focuses on the Home Equity Conversion Mortgage (HECM), the FHA-insured reverse mortgage program offered through FHA-approved lenders.
With a HECM, required monthly principal-and-interest payments are deferred while the loan remains in good standing. Interest and applicable charges are added to the balance, and the loan must eventually be repaid.
Homeownership costs continue. You must pay property taxes and homeowners insurance, maintain the property and meet the principal-residence and other loan requirements.
HECM requirements described here are specific to this program. Sources: CFPB: Reverse mortgage basics and HUD: HECM overview.
Who May Qualify for a HECM?
- For FHA-insured HECMs, all borrowers must be at least 62 years old. Some private (proprietary) reverse mortgage products are available to borrowers as young as 55, subject to product, lender and state requirements. These private products are not FHA-insured HECMs.
- The property must be your principal residence and meet program standards.
- You must own the property outright or have sufficient equity; existing liens must be paid off at closing.
- You must meet the financial assessment and applicable federal-debt requirements.
- You must complete counseling with a HUD-approved HECM counseling agency.
The lender evaluates whether you can meet ongoing property expenses. Required set-asides may reserve some loan funds for certain charges, reducing the amount available for other uses.
Age and equity alone do not establish approval. Ask the lender to review the property, household and finances together.
Sources: HUD’s HECM program description and CFPB: Eligibility requirements, and Finance of America: Private-product age and state restrictions.
How Can You Receive the Funds?
| Approach | What to review |
|---|---|
| Line of credit | Available with an adjustable-rate HECM. Draw funds as needed under the loan’s terms. |
| Monthly payouts | Adjustable-rate options include payouts for a set period or a tenure arrangement subject to loan requirements. |
| Lump sum | Fixed-rate HECMs use a single disbursement. Review the available proceeds and long-term borrowing cost. |
| Combination | Some adjustable-rate arrangements combine a credit line with monthly payouts. |
The principal limit depends on factors including the youngest borrower’s or eligible non-borrowing spouse’s age, the rate and applicable property-value limits. Payoffs, costs, set-asides and initial disbursement restrictions affect usable proceeds.
Request a written breakdown of what is available at closing and later. The home’s total equity is different from the amount you can access.
Sources: CFPB: Payment options and HUD: Program and disbursement rules.
Understand the Costs and Growing Balance
Upfront costs
May include origination, appraisal, title and other closing charges, initial mortgage insurance and counseling fees.
Ongoing loan costs
Interest, mortgage insurance and applicable servicing charges can accumulate in the loan balance.
Using proceeds to pay closing costs leaves less money available for other needs. As charges accumulate, you owe interest on a growing balance, which can reduce the equity remaining for a future move or your estate.
Ask for projections over several possible holding periods. Review the assumptions behind rates, withdrawals and property values, along with the lender’s Total Annual Loan Cost (TALC) disclosures.
Sources: CFPB: Reverse mortgage costs and TALC disclosure framework.
Build a Budget for Keeping the Home
You remain the homeowner. Required taxes, insurance, maintenance and occupancy responsibilities continue. Failing to meet the loan obligations can lead to the loan becoming due and foreclosure.
An illustrative property-expense budget
| Example expense | Annual amount | Monthly budgeting equivalent |
|---|---|---|
| Property taxes | $6,000 | $500 |
| Homeowners insurance | $2,400 | $200 |
| Combined | $8,400 | $700 |
Original budgeting example only. Actual expenses vary and can increase. Maintenance, repairs, utilities, association charges and any required flood insurance are additional. Monthly equivalents do not establish payment due dates.
Discuss possible moves or extended medical absences with the counselor. A change in occupancy can affect when repayment is required.
Sources: CFPB: Ownership and obligations and occupancy considerations.
Include Your Spouse and Heirs in the Plan
Co-borrower
A surviving co-borrower can generally remain and receive loan benefits while meeting the HECM obligations.
Non-borrowing spouse
A qualifying eligible non-borrowing spouse may receive repayment-deferral protections under HUD rules. This does not provide continued access to loan advances.
Have the counselor and lender explain each person’s status and protections before closing. Other family members living in the home do not automatically receive the same protections.
When the loan becomes due, heirs need a repayment plan to keep the property or may sell it. HECMs have non-recourse protections; applicable sale and payoff rules determine how mortgage insurance covers a balance above the home’s value.
Review your household’s situation with the servicer and an estate-planning professional. Request the requirements and deadlines in writing.
Sources: CFPB: Spouses and repayment and HECM balance protections.
Can a HECM Help With a Home Purchase?
HECM for Purchase allows eligible borrowers to buy a new principal residence using HECM proceeds and their own required funds.
You need funds to cover the difference between the permitted loan proceeds and purchase price, plus applicable closing costs. Ask the lender to calculate the required investment and verify eligible sources.
Compare the proposed home’s taxes, insurance and maintenance with your budget. The ongoing HECM responsibilities still apply.
Resource: CFPB: HECM for Purchase.
Compare the Alternatives Around Your Goals
| Option to consider | Question to explore |
|---|---|
| HECM | How do the costs, growing balance and obligations fit your long-term housing plan? |
| HELOC or home equity loan | Can you qualify and manage the added repayment obligations? |
| Mortgage refinancing | How would a new loan affect the payment, total cost and equity? |
| Downsizing or adjusting expenses | Could a different home or budget better support your needs? |
Consider how long you expect to stay, future care needs and the equity you want available later. Discuss any means-tested benefits with a qualified benefits adviser before choosing a payout approach.
Independent counseling helps you compare the consequences alongside the potential benefits.
Resource: CFPB: Alternatives to consider.
Prepare for a Conversation With Stan
Start with your household’s ages, property location, estimated value, existing mortgage balance and goals. Useful topics include:
- Expected time in the home and possible future moves
- Income sources, debts and available funds
- Tax, insurance, maintenance and association expenses
- Ownership, spouse and household arrangements
- Preferred access to funds and plans for your estate
The lender and counselor will confirm required records. Discuss a secure delivery method before sending documents. This preview does not accept financial records.
Common Questions
Does the lender become the owner of my home?
You retain title with a HECM. The home secures the loan, and you must continue meeting the ownership and loan obligations.
Do I still pay property taxes and insurance?
Yes. You must also maintain the home and meet occupancy requirements. Review any required set-aside and which expenses remain your responsibility.
Can I qualify if I still have a mortgage?
Existing liens must be paid off at closing using permitted funds. Ask whether the available proceeds and your resources support the transaction.
Can my spouse stay in the home after I die?
The answer depends on co-borrower or eligible non-borrowing-spouse status and compliance with program requirements. Review the household’s protections before closing.
Can my children inherit the home?
Inheritance does not cancel the loan. Your heirs will need to address the payoff when it becomes due; ask about their options and the applicable HECM protections.
How much of my equity can I access?
The lender must calculate the principal limit, required payoffs, costs, set-asides and permitted disbursements. An estimated property value alone cannot establish the usable amount.
Bring your questions. Explore your possibilities.
Talk with Stan about your property and household goals. Review relevant reverse mortgage options and the next steps for independent HECM counseling.
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For educational purposes only. This guide focuses on FHA-insured HECMs. Linked resources describe general concepts or program rules and do not establish available options for your scenario. Examples are not loan offers. Programs, rates, costs, terms and eligibility may change. All loans are subject to credit approval, financial assessment, property valuation, underwriting and applicable lender requirements. No approval, proceeds, savings or terms are guaranteed. Availability depends on borrower qualifications, property, state licensing and lender requirements. GetRateNow and West Capital Lending are private entities and are not affiliated with or endorsed by HUD, FHA or another government agency.