How It Works
A reverse mortgage, most commonly the Home Equity Conversion Mortgage (HECM) insured by the FHA, allows homeowners aged 62 and older to convert a portion of their home equity into cash without selling the home or making monthly mortgage payments. Instead, the loan balance grows over time and is repaid when the borrower sells the home, moves out permanently, or passes away.
Borrowers can receive funds as a lump sum, monthly payments, a line of credit, or a combination. The amount available depends on the borrower's age, home value, and current interest rates. The older the borrower and the more valuable the home, the more equity can be accessed. All borrowers must complete HUD-approved counseling before obtaining a reverse mortgage.
The loan does not need to be repaid as long as the borrower lives in the home as their primary residence, maintains the property, and stays current on property taxes and homeowners insurance. When the loan comes due, heirs can sell the home to repay the balance, refinance into a traditional mortgage, or walk away. FHA insurance ensures that borrowers or heirs never owe more than the home is worth.
Who Is This For?
- Homeowners age 62 or older with significant home equity
- Retirees who need supplemental income
- Seniors who want to age in place without mortgage payments
- Those who want to delay Social Security for a higher benefit
- Homeowners who need funds for healthcare or living expenses
Pros & Cons
Frequently Asked Questions
Who qualifies for a reverse mortgage?+
All borrowers on title must be at least 62 years old, the home must be your primary residence, and you must own it outright or have substantial equity. You must also complete HUD-approved counseling before closing.
Do I still own my home with a reverse mortgage?+
Yes. You retain title and full ownership rights. You can sell at any time, pass the home to heirs (who can refinance the loan or sell), and stay in the home as long as you maintain it, pay taxes, and pay insurance.
How is a reverse mortgage paid back?+
The loan becomes due when the last borrower leaves the home permanently (sale, move to long-term care, or death). At that point, heirs can refinance to keep the home or sell to satisfy the loan. FHA insurance protects against owing more than the home's value.
What are the disbursement options?+
You can take proceeds as a lump sum, fixed monthly payments for life or a set term, a growing line of credit (which actually grows over time), or any combination. The line-of-credit option is often the most flexible for retirement planning.