How a reverse mortgage actually works

What a reverse mortgage is

A reverse mortgage is a loan secured by your home, available to homeowners age 62 and older. The difference from a traditional mortgage is the direction the money flows: instead of you making a payment to the lender each month, the lender makes funds available to you, and the loan balance grows over time rather than shrinking.

The most common version by far is the Home Equity Conversion Mortgage, or HECM. It is insured by the Federal Housing Administration and governed by rules designed to protect borrowers.

Who qualifies

• At least one borrower is 62 or older (a younger spouse can be protected as an eligible non-borrowing spouse).
• The home is your primary residence — single family, many condos, and 2–4 unit properties where you occupy one unit.
• You own the home outright or have enough equity that the reverse mortgage can pay off any existing loan at closing.
• You can demonstrate the ability to keep paying property taxes, homeowners insurance, and maintenance. This is a financial assessment, not a credit-score test in the traditional sense.
• You complete counseling with an independent HUD-approved counselor.

How much you can borrow

The amount available — the principal limit — depends on three things: the age of the youngest borrower, the value of the home (up to the FHA lending limit), and current interest rates. Older borrowers and lower rates mean more available proceeds. Any existing mortgage must be paid off first with the proceeds; what's left is yours.

How you receive the money

• Line of credit. Draw only what you need. The unused portion grows over time, which is why many planners treat it as a standby reserve.
• Monthly payments. Tenure payments for as long as you live in the home, or term payments for a set number of years.
• Lump sum. A single fixed-rate draw at closing, often used to eliminate an existing mortgage.
• A combination. Most of our clients mix a payoff with a standby line of credit.

What happens to my title?

Nothing changes. Your name stays on the title exactly as it is today. The lender records a lien, the same as with any mortgage. You can sell at any time, refinance, or leave the home to your children — the loan is simply paid off from the proceeds when the home is sold.

What bills do I still have to pay?

There is no required monthly mortgage payment, but you remain responsible for property taxes, homeowners insurance, HOA dues if any, and keeping the home in reasonable repair. Falling behind on those can put the loan in default, which is the single most important thing to understand before signing.

What will it cost me?

• An FHA mortgage insurance premium — an upfront percentage of the home value plus an annual amount added to the balance.
• An origination fee, capped by HUD.
• Standard third-party closing costs: appraisal, title, recording.
• Interest, which accrues on the balance you've actually drawn.

Most of these can be financed into the loan rather than paid out of pocket. We will show you the exact dollar figures for your situation before you commit to anything.

What happens when I move or pass away?

The loan is repaid when the last borrower sells, moves out permanently, or passes away. At that point the family typically has several months, with possible extensions, to sell the home or refinance it into a traditional loan. Because a HECM is non-recourse, if the balance is higher than the home's value, FHA insurance covers the shortfall — the estate never owes the difference. If the home is worth more than the balance, the remaining equity belongs to the heirs.