A reverse mortgage allows an eligible homeowner to borrow against home equity. The most common type, the federally insured Home Equity Conversion Mortgage, or HECM, is generally available to homeowners age 62 or older who meet program requirements.
The balance moves in the opposite direction
With a traditional amortizing mortgage, regular payments generally reduce principal over time. With a reverse mortgage, interest and fees are added to the amount owed, so the loan balance can grow and home equity can decline. The loan is commonly repaid when the last eligible borrower no longer lives in the home, the property is sold, or another maturity event occurs under the agreement.
Homeowner responsibilities continue
HECM borrowers must generally keep the home as a principal residence, pay property taxes and homeowners insurance, and maintain the property. Failure to meet these obligations can place the loan in default and may lead to foreclosure.
How proceeds may arrive
Depending on the product and program rules, funds may be available as a lump sum, monthly advance, line of credit, or combination. Each structure affects how quickly the balance grows. Ask for the Total Annual Loan Cost disclosure and review scenarios for different time periods and appreciation assumptions.
Costs and alternatives
- Origination and servicing charges
- Mortgage insurance and third-party closing costs
- Interest added to the balance
- Effect on equity available for moving, care, emergencies, or heirs
- Costs of a home equity loan, HELOC, sale, downsizing, or public benefit alternative
Questions for counseling
- What events make the loan due and payable?
- How much can be borrowed, and how will proceeds be delivered?
- How do taxes, insurance, and repairs stay funded?
- What happens if the borrower moves to long-term care?
- What options will heirs have?
- How does the loan affect future housing flexibility?
A reverse mortgage can provide liquidity without a regular mortgage payment, but it exchanges future equity for money today. The decision should be based on a realistic housing horizon, continuing property costs, and the needs of everyone who may remain in the home.