Reverse mortgages

A reverse mortgage is a home loan that runs backward. Instead of you paying the lender every month, the lender pays you, and the loan balance grows over time instead of shrinking. Nothing is due until the last borrower dies, sells, or moves out for good, as long as the borrower keeps up property taxes, insurance, and basic maintenance.

Nearly all reverse mortgages in the United States are Home Equity Conversion Mortgages (HECMs), insured by the Federal Housing Administration and available to homeowners 62 and older ¹. That federal insurance is what makes the product's central promise work: no matter how large the balance grows, neither you nor your heirs will ever owe more than the home is worth. A smaller market of proprietary "jumbo" reverse mortgages, offered by private lenders without FHA insurance, serves higher-value homes and sometimes younger borrowers, with different rules.

Reverse mortgages carry a complicated reputation, partly earned by past abuses and partly left over from rules that have since been tightened. Today the loan is heavily regulated, with mandatory counseling and spousal protections, but it remains expensive money that suits some situations and works against others.

How a HECM works#

To qualify, you must be at least 62, live in the home as your principal residence, and either own it outright or have substantial equity, since any existing mortgage must be paid off at closing, often with the reverse mortgage's own proceeds ¹. Eligible properties include single-family homes, HUD-approved condominiums, and 2-4 unit properties where you occupy one unit ¹. Lenders also run a financial assessment of your credit history and cash flow to check that you can keep paying taxes and insurance.

How much you can borrow, called the principal limit, depends on the age of the youngest borrower, current interest rates, and the home's value up to a federal cap. In 2026, the HECM maximum claim amount is $1,249,125, so value above that line does not increase the loan ². Older borrowers and lower rates mean a larger percentage of the home's value is available; a borrower in their early 60s might tap roughly a third to two fifths of it, a borrower in their 80s more.

Interest and mortgage insurance are added to the balance every month, so the debt compounds. At a combined 7 percent rate of interest and insurance, a balance doubles in roughly a decade. The loan becomes due and payable when the last borrower dies, sells, moves out for more than 12 consecutive months (including into a nursing home), or fails to meet the loan's obligations ³.

Sources for this section: [1] [2] [3]

Ways to take the money#

Two details are worth knowing. First, the line of credit's growth feature is unusual: the untouched portion gets bigger every year, which is why some planners treat a HECM credit line opened early as a standby reserve for late-life costs or bad market years. Second, you generally cannot take everything at once. In the first year, disbursements are capped at the greater of 60 percent of the principal limit or your mandatory obligations (such as paying off an existing mortgage) plus 10 percent ⁴.

Sources for this section: [4]

What it costs#

HECMs are among the more expensive ways to borrow, and most costs are financed into the loan, which means they compound too.

Interest accrues on top of all of it, at rates typically somewhat higher than conventional mortgages. Because so much of the cost lands at closing, a reverse mortgage is a poor tool for a short stay: someone who takes one out and sells three years later pays a steep effective price for the money.

Sources for this section: [5]

Your obligations after closing#

"No monthly payments" does not mean no responsibilities. Borrowers must stay current on property taxes, homeowners insurance, flood insurance where required, and any HOA dues; keep the home in reasonable repair; and certify occupancy each year ³. Falling behind is a default that can end in foreclosure even though the mortgage itself requires no payment. When the financial assessment raises doubts, lenders set aside part of the loan proceeds in a life expectancy set-aside (LESA), an escrow that pays taxes and insurance automatically, which lowers what you can draw but removes the main default risk.

Caution: A reverse mortgage does not remove the risk of losing the home. Falling behind on property taxes, insurance, or upkeep is a default that can lead to foreclosure even though no loan payment is due, so if those bills already strain your budget, the obligations deserve as much attention as the payouts. And anyone pressuring you to use the proceeds to buy an investment, an annuity, or anything else in the same transaction is showing you a red flag; see scams that target seniors.

Sources for this section: [3]

Protections built into the program#

Congress and HUD have layered several safeguards onto HECMs:

Mandatory counseling. Before applying, you must complete a session with an independent, HUD-approved housing counselor who reviews costs, alternatives, and obligations, in person or by phone ¹. The counselor works for you, not the lender.

Non-recourse. You can never owe more than the home's value when the loan is repaid. If the balance outgrows the price the home sells for, FHA insurance absorbs the difference; heirs who want to keep the home can settle the debt for 95 percent of its appraised value if that is less than the balance ⁶.

Non-borrowing spouse rules. A spouse who is not on the loan, often because they were under 62 at closing, can qualify as an eligible non-borrowing spouse and remain in the home after the borrowing spouse dies or moves to long-term care, provided the couple was married at closing, the spouse was named in the loan documents, and the home stays their principal residence ⁷. An eligible non-borrowing spouse receives no further loan payouts, and must keep meeting the tax, insurance, and upkeep obligations ⁷.

Loan proceeds are also not taxable income, since they are borrowed money rather than earnings, a point covered in taxes in retirement. Money that sits in your bank account can still count against asset limits for Medicaid or SSI, so timing draws matters for anyone on means-tested benefits.

Sources for this section: [1] [6] [7]

Alternatives worth pricing first#

A reverse mortgage is one of several ways to tap a house. A home equity line of credit or home equity loan costs far less to open and carries lower rates, at the price of required monthly payments and the risk of losing the home if you cannot make them. Downsizing converts equity to cash while also cutting taxes, insurance, and upkeep permanently. Many states and localities offer property tax deferral programs for older homeowners, which fix the narrower problem of a tax bill outrunning income. Some state and local agencies and nonprofits still offer single-purpose reverse mortgages, small loans restricted to one use such as repairs or taxes, and they are usually the cheapest reverse product where available. Family arrangements, such as a child buying the home or lending against it, sometimes beat all of the above.

When it helps and when it hurts#

The loan tends to help homeowners who are equity-rich and income-poor, plan to stay in the home indefinitely, and have a house that suits aging in place or can be adapted with home modifications. Common productive uses include erasing an existing mortgage payment, funding in-home care, building a standby credit line against late-life surprises, and bridging spending in a market downturn so investments are not sold at lows. For a household whose budget simply does not balance on Social Security and savings, home equity is often the largest untapped asset.

It tends to hurt when the stay is likely to be short, since upfront costs cannot be recovered; when declining health points toward assisted living within a few years, which makes the loan due; when a partner, sibling, or adult child living in the home is not protected on the loan documents and would have to move; or when the goal is to leave the house itself to heirs, since the debt must be repaid before the home passes, a tradeoff worth coordinating with your estate planning. And because the credit line grows and the balance compounds, borrowing early and spending casually can consume in fifteen years the equity that was supposed to fund year twenty-five.

RetiredWiki. (2026, July 6). Reverse mortgages. https://retiredwiki.com/article/reverse-mortgage