A reverse mortgage is a loan that lets eligible homeowners convert some of their home equity into funds without making required monthly mortgage payments to the lender while they meet the loan’s obligations. The most common type is the FHA-insured Home Equity Conversion Mortgage (HECM), though some lenders also offer proprietary reverse mortgages with different terms. The loan balance generally grows over time and is repaid when a specified loan maturity event occurs.
HECMs are generally for homeowners age 62 or older who live in the home as their primary residence. All borrowers named on the loan must meet applicable age and occupancy requirements. The home must meet program standards, and the borrower must be able to keep up with property taxes, homeowners insurance, maintenance, and other required housing costs.
Eligibility is not based on age alone. Applicants typically need to complete counseling with a HUD-approved reverse mortgage counselor before applying for a HECM. The lender also reviews the property, the borrower’s financial circumstances, and program requirements. Approval and eligibility are subject to credit approval and program guidelines.
Borrowers with an existing mortgage may still be able to apply, but the existing loan generally must be paid off at closing using reverse mortgage proceeds or other funds. If the available proceeds are not enough to cover the mortgage and required costs, the borrower may need additional funds or may not be able to proceed.
A reverse mortgage is a loan, not a grant. Costs may include an origination fee, appraisal and other closing costs, and—for a HECM—an upfront and ongoing mortgage insurance premium. Interest accrues on the amount borrowed, and fees or financed costs may add to the balance. The balance can therefore increase over time, reducing the equity remaining in the home.
HECM proceeds are calculated using factors that may include the age of the youngest borrower or eligible non-borrowing spouse, the home’s appraised value, the interest rate, and the applicable FHA lending limit. The amount available is not necessarily equal to the home’s full equity. FHA lending limits apply to HECMs; proprietary programs may use different limits and eligibility rules. Limits and terms can change, so the lender can explain what applies to an individual application.
There is generally no required monthly principal-and-interest payment while the borrower continues to meet the loan obligations. However, the borrower must continue paying property taxes and homeowners insurance, maintain the home, and satisfy applicable occupancy and loan requirements. Failure to meet these obligations could put the loan in default and may lead to foreclosure.
A HECM typically becomes due when the last borrower sells the home, moves out of the home as a primary residence, or dies. Other maturity events may apply under the loan documents. A surviving spouse who is not a borrower may have certain protections if applicable requirements are met, but the rules are specific and should be reviewed before closing. For HECMs, FHA insurance generally provides non-recourse protection: repayment is generally limited to the home’s value when the loan is repaid, subject to program requirements. This does not remove the borrower’s responsibility to meet the loan obligations while living in the home.
A reverse mortgage may provide access to home equity while allowing eligible borrowers to remain in their home, and it does not require the same monthly mortgage payments as a traditional forward mortgage. Depending on the loan and the borrower’s plans, access to funds may help with expenses or provide flexibility in managing cash flow.
The trade-offs matter. Interest and fees accrue, which can reduce home equity and the amount eventually available to the borrower or heirs. The home still has to be maintained, and taxes and insurance still have to be paid. Proceeds may also affect eligibility for some needs-based public benefits, depending on how the funds are held or used. Borrowers should seek benefits-specific guidance before making decisions. A reverse mortgage may not fit someone planning to move soon or someone who wants to preserve as much home equity as possible.
We can help you understand the reverse mortgage options available through us, the information needed for an initial review, and the steps involved in applying. Before moving forward, consider your long-term plans for the home, ongoing expenses, other sources of funds, and how borrowing may affect your equity and heirs. For a HECM, you must complete counseling with a HUD-approved counselor; we can explain where that step fits in the process.
Loan terms and availability depend on the product, the borrower’s circumstances, and applicable program requirements. Any discussion of eligibility or loan proceeds is preliminary until reviewed through the application process. All loans are subject to credit approval and program guidelines.
