A reverse mortgage is a unique financial tool growing in popularity among older homeowners looking to turn their home equity into cash. As more Americans retire with limited savings and rising living costs, reverse mortgages offer a way to remain in their homes while accessing extra income, without monthly loan payments. In this guide, we’ll walk through exactly what reverse mortgages are, how they work, who they’re best for, and what to watch out for before applying.
A reverse mortgage allows homeowners aged 62 and older to convert home equity into tax-free cash, without monthly mortgage payments.
It’s commonly used to supplement retirement income, pay off existing debt, or cover long-term expenses while staying in your home.
There are three main types: HECMs (federally insured), proprietary loans (for high-value homes), and single-purpose options (for specific needs).
Key Requirements: You must be at least 62, live in the home as your primary residence, and be able to maintain property taxes, insurance, and upkeep.
Tip: Consider a line of credit structure. Unused funds can grow over time and offer greater flexibility in retirement.
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"what is a reverse mortgage")
A reverse mortgage allows homeowners 62 and older to convert a portion of their home equity into tax-free cash. Instead of paying the lender, the lender pays you through monthly installments, a line of credit, or a lump sum. The loan balance grows over time and doesn’t require repayment until the homeowner sells the home, moves out, or passes away.
Unlike a traditional mortgage, where the borrower makes monthly payments, a reverse mortgage doesn’t require regular payments. Instead, interest is added to the loan balance each month, and repayment is deferred until a qualifying event occurs. Another key difference is the eligibility criteria. Reverse mortgages are only available to older adults and must be tied to a primary residence. This structure makes them especially appealing to retirees who are asset-rich but cash-flow-limited.
Homeowners typically use reverse mortgages to supplement retirement income, cover healthcare costs, or pay off remaining mortgage balances. The ability to age in place while accessing built-up equity is the core appeal for many borrowers. On the other hand, if you’re younger or have strong income, a second mortgage or home equity line of credit might be a better fit for projects or debt consolidation. Real estate investors or Airbnb hosts might find even more flexibility with a DSCR loan, which uses rental income instead of personal income or credit.
To qualify for a reverse mortgage, especially the federally backed HECM, you must be at least 62 years old, live in the home full-time, own it outright, and hold a low mortgage balance. You’ll also need to show that you can keep up with property taxes, insurance, and basic maintenance. A required counseling session with a HUD-approved advisor ensures you fully understand the terms before proceeding. Borrowers must also complete a HUD-approved reverse mortgage counseling session before closing, ensuring they fully understand the terms, fees, and obligations associated with the loan.
Reverse mortgage funds can be received in several ways, depending on your goals: a one-time lump sum, fixed monthly payments, a line of credit, or a combination. Your age, home value, current interest rates, and remaining mortgage balance influence how much you can borrow. The older you are and the more equity you have, the more funds you’re typically eligible for.
The reverse mortgage loan becomes due when the borrower dies, sells the home, or moves out permanently, such as into assisted living. Then, it is usually sold, and the proceeds go toward repaying the loan. Any remaining equity goes to the homeowner or their heirs. Importantly, because reverse mortgages are non-recourse loans, your heirs won’t be responsible for more than the home is worth.
Not sure if a reverse mortgage fits your needs? Run the numbers first and explore what your monthly payout or lump sum might look like with our free mortgage calculators.
To qualify for a reverse mortgage, you must be at least 62 years old, live in the home as your primary residence, and have significant home equity. You’ll also need to demonstrate the ability to pay property taxes, homeowners insurance, and basic upkeep, and complete counseling with a HUD-approved advisor.
You must be able to cover ongoing property charges like taxes, insurance, and upkeep. The property must be in good condition, and you must demonstrate the financial capacity to avoid default.
While proprietary and single-purpose reverse mortgages have similar eligibility basics, they are more flexible. Since they’re not federally insured, lenders can set their terms. It’s important to read the fine print and compare options carefully.
Your equity has potential. Find out how a reverse mortgage could support your goals and chat with a licensed expert today.
Reverse mortgages come in three main forms, each tailored to different financial goals and homeowner situations. Whether you’re looking for a government-backed option, a higher-limit private loan, or a small-purpose solution, it’s important to understand how each type works.
HECMs are the most common type of reverse mortgage and are insured by the federal government through the FHA. They come with standardized rules, protection for borrowers, and access to government-approved counseling. They also offer flexible payment options, making them suitable for most retirement planning needs.
Privately offered by lenders, proprietary reverse mortgages, sometimes called jumbo reverse mortgages, allow borrowers with higher-value homes to access more equity than a HECM would allow. These loans aren’t federally insured, so terms vary depending on the lender. While they can be useful for homeowners with significant property value, carefully compare offers to make the best decision for you.
These are typically offered by nonprofit organizations or local government programs. They’re limited in use—usually restricted to home repairs or property taxes—but tend to come with lower upfront costs. For seniors with modest needs and limited income, this can be a targeted, affordable solution.
Compare multiple loan options side by side to make informed choices with our free loan comparison calculator.
A reverse mortgage can be a powerful financial tool, but it’s not the right fit for everyone. Understanding your long-term goals and lifestyle is key to deciding whether this option aligns with your needs. Eligibility hinges on being 62 years old, owning the home outright (or having low remaining mortgage debt), and using the home as a primary residence.
Alternatives include selling and downsizing, using a home equity loan or HELOC, or mortgage refinancing into a lower mortgage rate. The right solution depends on your long-term financial goals, lifestyle, and comfort with loan terms.
Thinking about refinancing? Use our refinance calculator to run the numbers first and see if it’s the right move for your budget.
The amount you can borrow depends on several factors: your age, the appraised value of your home, current interest rates, and your existing mortgage balance. Older borrowers can typically access more equity, and a lower interest rate increases their potential payout. If you still owe money on a traditional mortgage, that balance will be paid off first using your reverse mortgage proceeds.
Then, that percentage is applied to the appraised home value.
Resulting in an estimate between $175,000 – $210,000 available in reverse mortgage proceeds.
Use our refinance calculator to compare your current mortgage to a new one and estimate your monthly and lifetime savings.
Reverse mortgage rates fluctuate just like traditional mortgage rates. Borrowers can choose between a fixed rate, usually available only with a lump sum payout, or a variable rate, which applies to flexible payout options like monthly disbursements or a line of credit.
Reverse mortgages include standard loan fees: origination charges, closing costs, appraisal fees, and mortgage insurance premiums. Servicing fees may also apply over the life of the loan. These costs are often rolled into the loan, but they do reduce your total available funds.
All fees and interest are added to the loan balance over time. This means the longer you stay in the home, the more the loan accrues, and the less equity remains for you or your heirs.
A reverse mortgage can offer flexibility and financial relief in retirement, but it’s not without trade-offs. Before making a decision, you need to know and understand the potential benefits and drawbacks.
You don’t have to make monthly payments toward the loan—repayment is deferred until you sell, move out, or pass away..
Reverse mortgage funds are loan proceeds, not income, so they’re not taxed by the IRS.
You can remain in your home for as long as you live there and meet the loan requirements.
High upfront fees
Reverse mortgages often come with closing costs, insurance premiums, and origination fees that reduce your total available funds.
Reduced home equity
As the loan balance grows over time, the amount of equity you or your heirs retain shrinks.
Foreclosure risk
If you don’t stay current on property taxes, homeowners insurance, or home upkeep, the lender may foreclose.
If you’re still exploring your options, a second mortgage might offer a better fit for short-term borrowing with lower fees.
Unlike a reverse mortgage, home equity loans and HELOCs require monthly repayments and are available to a broader age group. They’re typically better for short-term needs and borrowers who can handle monthly payments. Reverse mortgages offer more flexibility for retirees on a fixed income.
A reverse mortgage might be ideal for homeowners who need long-term financial support and plan to stay home indefinitely. Home equity loans or HELOCs may be better if you need a specific amount for a short-term goal and can repay it regularly.
A reverse mortgage can be more than just a loan, it’s a way to unlock the value of your home and use it to support your lifestyle in retirement. Whether you’re looking to supplement your income, pay off remaining debts, or simply age in place with peace of mind, a reverse mortgage offers flexible options without monthly loan payments.
While accessing your home’s equity can provide financial freedom, it also reduces what you may leave behind. That’s why making an informed decision with expert guidance is so important.
At Mortgage Marketplace, we’re here to simplify the process. Whether you’re weighing reverse mortgage options, comparing loan types, or just getting started, we’ll help you navigate each step with clarity and confidence.
Take the first step toward making your home work for your future. Get started online or speak with one of our mortgage experts today.
I appreciate the breakdown of closing costs—it’s something I hadn’t considered before. Great read!
Sammy P
Queens, NY
5/5
Great article! I didn’t realize how important it is to budget for maintenance and closing costs. Very helpful!
Jeremy M
Georiga, MD
5/5
This was super insightful! The tips on saving for a down payment cleared up a lot of confusion for me.
Tania N
Towns, CA
5/5
Yes, borrowers can refinance to a new reverse mortgage to access more equity or get better terms.
The loan becomes due. The home is sold to repay the balance, and any remaining equity goes to the heirs.
No. Reverse mortgages are non-recourse loans, meaning heirs are not responsible for loan amounts beyond the home’s value.
Tom Selleck is a spokesperson for a major reverse mortgage lender. His presence helps promote awareness, but always research independently before deciding.
No, funds received are loan proceeds, not income, and are not taxed.
Yes, but only if you fail to meet the loan terms, like paying taxes, insurance, or home maintenance.
No. Reverse mortgage proceeds don’t affect Social Security or Medicare, though they may impact need-based benefits like Medicaid.
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