What Is a Reverse Mortgageand How Does It Work for Seniors?
A reverse mortgage lets homeowners 62 and older convert part of their home equity into cash — without a monthly mortgage payment. The loan is repaid when the home is sold or the last borrower moves out. Here is how it works, in plain English.
Saman Khanian
Author & Mortgage Professional
Stay in the home you love
Access equity — no required monthly payment
Borrow Against Your Home — Pay the Loan When You Sell
A reverse mortgage lets a homeowner age 62 or older convert part of the home's equity into cash. You keep the title and keep living there, and you are not required to make a monthly mortgage payment while the loan is outstanding.
The loan becomes due when the last borrower sells, permanently moves out, or passes away. The money is not a government benefit and not free cash — it is a loan secured by your home, and interest accrues on what you borrow.
Who it is for
Homeowners 62+
You must live in the home as your primary residence
What you get
Equity paid to you
Lump sum, monthly payments, a line of credit, or a mix
When it is repaid
On sale or move-out
Or after the last borrower passes away
How a Reverse Mortgage Actually Works
The “reverse” in the name refers to what happens to the loan balance: with a normal mortgage it falls with each payment, but with a reverse mortgage it rises. Here is the flow from start to finish.
You stay the owner
You keep the title to your home. The lender places a lien on it, exactly as a regular mortgage does — but the balance grows instead of shrinking.
Equity is paid to you
Based on your age, the home's appraised value, and current rates, the lender advances part of your equity — not all of it.
Interest is added to the loan
Because you are not making payments, interest is added to the loan balance each month. The balance rises over time — compounding.
You repay when you leave
The loan becomes due when the last borrower sells, moves out for good, or passes away. Your heirs can sell or keep the home by paying the loan.
Regular mortgage vs. reverse mortgage
Regular mortgage
- You borrow the money up front (at purchase)
- You make monthly payments
- The balance goes down over time
- Equity grows as the loan is paid off
Reverse mortgage
- You borrow gradually from equity you already own
- No required monthly mortgage payment
- The balance goes up over time
- Equity left for heirs can shrink
Who Qualifies for a Reverse Mortgage
Unlike a regular mortgage, qualifying is less about income and credit and more about age, home equity, and your ability to keep up with the carrying costs.
Age 62 or older
At least one borrower on the loan must be 62 or older for the most common type (HECM). The borrower who is 62+ must be the one on title.
Own the home — or owe very little
Any existing mortgage or liens must be paid off with the reverse mortgage proceeds. If you still owe a lot, there may be little or nothing left to receive.
Live there as your primary home
The property must be your primary residence for most of the year. Second homes and investment properties do not qualify for a HECM.
Property condition and value
The home must meet minimum property standards and a HUD-approved appraisal. Some condos and manufactured homes qualify; check the rules before applying.
Show you can pay taxes and insurance
You must demonstrate the ability to keep paying property taxes, homeowners insurance, and HOA dues — a financial assessment is part of the process.
Complete counseling
Federal rules require independent counseling from a HUD-approved agency before you can close — designed to make sure you understand the loan.
Not sure if you qualify? We will walk through age, equity, and the property in one call.
Apply NowHow You Get the Money
One of the biggest advantages is flexibility. You choose how the proceeds reach you — and you can often change your mind later.
Lump sum
Best for: A large, one-time needTake the full amount available at closing in one payment. Fixed-rate lump sums are typically the most common choice, and you receive the whole sum whether or not you spend it right away.
Monthly payments
Best for: Steady incomeReceive a set amount each month — for a fixed number of months (term) or for as long as you live in the home (tenure). Useful for supplementing retirement income.
Line of credit
Best for: Uncertain timingDraw money as needed, up to a limit. Unused credit generally grows over time, which can make it a valuable buffer for later years. Interest applies only to what you draw.
A combination
Best for: Paying off a loan + a reserveMany borrowers mix options — for example, a lump sum to pay off an existing mortgage plus a line of credit for future needs. The right mix depends on your goals.
Want to compare what a lump sum, monthly payments, or a credit line would look like for you?
Apply NowHECM, Jumbo and Proprietary Reverse Mortgages
Most seniors start with a HECM because of its federal protections. Higher-value homes sometimes make a jumbo option worth comparing.
HECM
Home Equity Conversion Mortgage
- The most common reverse mortgage — insured by the FHA
- Maximum loan limit set annually by HUD
- Requires HUD-approved counseling
- Non-borrowing spouses have certain protections
Jumbo
Proprietary high-value loans
- For homes valued above the HECM limit
- Not FHA-insured — issued by private lenders
- Terms and protections can vary by lender
- Higher loan amounts possible
Proprietary
Private reverse mortgages
- Private lenders set their own rules
- Sometimes for younger borrowers or unique properties
- Protections depend on the lender — read carefully
- May not offer the same federal safeguards as a HECM
Does the Loan Balance Grow?
Yes. Because you are not making monthly payments, the interest on the loan is added to the balance. Each month, interest is charged on the new, larger balance — so the loan can grow faster over time than a simple flat calculation would suggest.
That means the equity left in the home generally shrinks while you hold the loan. If the home rises in value, the remaining equity can grow again — but that is not guaranteed.
The key protection: with a HECM, you can never owe more than the home is worth when it is sold. If the home sells for less than the balance, FHA insurance covers the difference — you and your heirs are not personally liable for more than the value.
Illustrative balance over time
Example only: $150,000 drawn at closing, ~7% assumed rate, no payments made
Costs and Closing
A reverse mortgage is not free. Up-front costs usually come out of the loan proceeds, which reduces how much cash you receive — so compare the total cost against the benefit.
Initial mortgage insurance premium (MIP)
Typically 2% of the maximum claim amount on a HECM, paid at closing.
Ongoing mortgage insurance premium
Charged annually on the outstanding balance — this funds the FHA protections.
Origination fees
Lender fees, capped by HUD on a HECM depending on the home's value.
Appraisal, closing and title costs
Standard third-party costs for confirming value and clearing title.
Independent counseling
A required session with a HUD-approved counselor before closing.
Servicing fees
Monthly servicing charges to administer the loan over its life.
Costs vary by lender, program, and property. Your Loan Estimate will itemize every fee before you commit. Ask a licensed loan officer for current amounts for your situation.
Your Ongoing Obligations
“No monthly mortgage payment” does not mean “no responsibilities.” These four obligations keep the loan in good standing — miss one and the loan can come due early.
Live in the home
The home must stay your primary residence. Moving into assisted living, a nursing home, or another home for more than 12 months can trigger repayment.
Pay property taxes
You remain responsible for property taxes. A tax default can make the loan due — and can lead to foreclosure on a reverse mortgage.
Keep insurance current
Homeowners insurance (and flood insurance where required) must stay in force. Lapses are a common reason borrowers get into trouble.
Maintain the property
Keep the home in good condition and pay HOA dues. Repairs cannot be ignored because there is no mortgage payment.
We will show you how the loan fits with your taxes, insurance, and budget before you sign.
Apply NowPros, Cons and Risks
A reverse mortgage is neither good nor bad in a vacuum. It works for some situations and not others — here is the full picture.
Advantages
- No required monthly mortgage payment
- Stay in your home and keep the title
- Cash is generally not taxable income — confirm with a tax professional
- Flexible payout: lump sum, monthly payments, a line of credit, or a mix
- You can never owe more than the home is worth on a HECM
- Non-borrowing spouses have protections under current HECM rules
Risks and drawbacks
- The loan balance grows and equity shrinks over time
- Up-front and ongoing costs reduce what you receive
- You must keep paying taxes, insurance, and maintenance
- Leaving the home for good can make the loan due
- Heirs may need to sell the home to repay the loan
- It is complex — counseling is mandatory for a reason
When the Loan Is Repaid — and What Happens to Your Heirs
This is the question most families worry about. The answer is usually calmer than people expect.
The loan comes due
Trigger eventWhen the last borrower sells, permanently moves out, or passes away, the reverse mortgage becomes repayable.
Heirs decide what to do
Usually within 6 monthsHeirs can sell the home to repay the loan, pay the loan and keep the home, or refinance it into a new mortgage.
Sale pays the loan first
At saleIf the home is sold, the loan is paid from the sale proceeds first. Any remaining equity goes to the borrowers or their estate.
The non-recourse cap applies
Proceeds shortfallIf the home is worth less than the loan on a HECM, the FHA insurance covers the difference. Borrowers and heirs are not personally liable for more than the home's value.
We will explain exactly what your family would need to do. No obligation.
Helping a Parent Understand It
Adult children are often the ones researching this loan — and the ones who worry about it most. Here is how to help constructively.
Talk about it early
A reverse mortgage affects the whole family, even when it is one person's decision. Discuss goals, the home's future, and the inheritance picture before anyone signs.
Counseling is a safeguard
A HUD-approved counselor reviews the terms with the borrower independently of the lender. Encourage your parent to use it and to ask every question they have.
Check the ongoing costs fit
The borrower still pays taxes, insurance, and maintenance. If those are already a strain, the loan may not be the right fit.
Watch for scams
No legitimate lender will ask a senior to sign over the title or invest loan proceeds in a product. Report pressure tactics or anyone who wants the money moved quickly.
Reverse Mortgage Questions, Answered
What is a reverse mortgage in simple terms?
A loan that lets a homeowner 62 or older borrow against their home equity without making a monthly mortgage payment. You keep living in the home, and the loan is repaid when the home is sold or you permanently move out.
Do I lose my home with a reverse mortgage?
No. You keep the title and stay in the home. The lender places a lien, but you remain the owner. The loan can come due early only if you fail to live there as your primary residence or fail to pay taxes, insurance, or repair the property.
Is the money from a reverse mortgage taxable?
Loan proceeds are generally not considered taxable income because they are borrowed money. Property taxes, insurance, and other obligations still apply. Confirm your specific situation with a licensed tax professional.
What happens to the loan when the borrower dies?
The loan becomes due. Heirs can sell the home to repay it, pay it off and keep the home, or refinance. On a HECM, if the home sells for less than the balance, the FHA insurance covers the difference and heirs are not personally liable beyond the home's value.
Can I get a reverse mortgage if I still have a mortgage?
Yes, but the existing mortgage must be paid off first, usually with proceeds from the reverse mortgage. That means the amount you actually receive will be reduced by what you still owe.
How much can I borrow?
It depends on your age, the home's appraised value, current interest rates, and HUD's lending limit. Older borrowers generally qualify for a higher percentage of equity. A lender can model the actual number for you.
Do reverse mortgages require good credit?
There is no standard credit score requirement like a regular mortgage, but lenders perform a financial assessment to confirm you can pay taxes, insurance, and maintenance. If the assessment shows a shortfall, a set-aside may be required.
Can a non-borrowing spouse stay in the home?
Under current HECM rules, a non-borrowing spouse who is married to the borrower at closing and meets certain requirements may be allowed to remain in the home after the borrowing spouse dies or moves into care. Protections depend on the specific rules in effect — ask a counselor.
How is a reverse mortgage different from a home equity loan?
A home equity loan is repaid monthly and typically over a set term. A reverse mortgage requires no monthly mortgage payment and is repaid when the home is sold or the last borrower leaves — but its balance grows instead of shrinking.
Saman Khanian
Saman Khanian is the CEO of Equitable Lending, a Los Angeles mortgage lender serving homeowners and investors across California. He writes about reverse and home equity lending, refinance strategy, and retirement financing — with an emphasis on evaluating loans on total cost and long-term impact rather than the monthly payment alone.
View Full ProfileDisclosure: This article is for informational purposes only and does not constitute a loan commitment, rate quote, or financial, legal, or tax advice. All figures are illustrative examples. Reverse mortgage terms, costs, and eligibility vary by lender, borrower, property, and state, and all loans are subject to credit approval and underwriting. HUD-approved counseling is required before closing on a HECM. Equitable Lending is a licensed mortgage lender — NMLS #1124483, DRE #01941713. See our Licensing Information page and speak with a licensed loan officer about your situation.
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