Quick answer: A reverse mortgage lets homeowners aged 62 or older convert home equity into cash without monthly mortgage payments, but the loan balance grows over time and is repaid when you sell, move out for more than 12 months, or die. Upfront costs are high, often $10,000 to $20,000 on a typical loan once mortgage insurance, origination and closing costs are counted. It suits someone who intends to stay in the home long term and has no plan to leave it to heirs. It is a poor fit for anyone likely to move within a few years.
How it works
The most common type is a HECM (Home Equity Conversion Mortgage), insured by the Federal Housing Administration. You borrow against your equity and receive the money as a lump sum, monthly payments, a line of credit, or a combination. You keep the title. Interest and fees accrue onto the balance rather than being paid monthly, so the debt grows and the equity shrinks over time.
The loan becomes due when the last surviving borrower or eligible non-borrowing spouse dies, sells the home, or stops using it as their principal residence. The 12-consecutive-month grace period applies only to absences in a healthcare facility such as a hospital, rehabilitation centre, nursing home or assisted living; any other move-out makes the loan due as soon as the home is no longer where you live most of the year. At that point the home is usually sold to repay it. Because HECMs are non-recourse, neither you nor your heirs will have to pay more than 95% of the home’s appraised value, even if the balance has grown beyond its value.
Eligibility
- Youngest borrower aged 62 or older.
- The home is your primary residence.
- Enough equity that any existing mortgage can be cleared at closing, from your own funds or from the loan proceeds. There is no fixed percentage threshold in HUD or CFPB rules.
- Any existing mortgage must be paid off, often using the reverse mortgage proceeds themselves.
- You must complete HUD-approved counselling before applying. This is mandatory and genuinely useful; the counsellor is not selling you anything.
- You must demonstrate you can afford property taxes, homeowners insurance and maintenance.
What it costs
| Cost | Typical amount |
|---|---|
| Origination fee | Capped by FHA rules; commonly $2,500–$6,000 |
| Upfront mortgage insurance premium | 2% of the maximum claim amount (your home value or the FHA limit, whichever is lower) |
| Annual mortgage insurance premium | 0.5% of the loan balance, accruing yearly |
| Closing costs (appraisal, title, recording) | Varies widely by state and property; ask for the itemised estimate |
| Servicing fee | A monthly charge on some loans; many current HECMs have none — check your loan estimate |
| Interest | Accrues on the growing balance, usually variable |
Most of these can be financed into the loan, which is why people underestimate them. Financing the costs means borrowing them and paying interest on them for the life of the loan.
How much you can borrow
The amount depends on the age of the youngest borrower, current interest rates, and the lesser of your home value or the FHA lending limit — $1,249,125 for loans with case numbers assigned during 2026. Older borrowers and lower rates mean a higher percentage. HUD sets the exact figures through its principal limit factor tables, so a counsellor or the FHA calculator will give you your own number rather than a rule of thumb. Any existing mortgage is deducted from that first.
The obligations that cause foreclosure
A reverse mortgage does not remove your responsibilities as an owner. Borrowers lose homes when they fail to:
- Pay property taxes
- Keep homeowners insurance in force
- Maintain the property in reasonable condition
- Continue living there as the primary residence
Extended time in a nursing home triggers the 12-month rule. Moving in with family does not get that protection — the loan can be called as soon as the home stops being where you live most of the year. This is the most common way reverse mortgages go wrong, and it is worth planning for explicitly if health is a factor.
Protecting a non-borrowing spouse
If one spouse is under 62 and is not on the loan, they may be able to remain in the home after the borrower dies as an eligible non-borrowing spouse, provided the paperwork was completed correctly at closing. Many older cases went wrong on exactly this point. If your spouse is younger, raise this specifically with the counsellor and confirm in writing how they are protected.
Alternatives worth comparing first
| Option | Upside | Downside |
|---|---|---|
| Home equity loan or HELOC | Far cheaper to set up, keeps equity clearer | Requires monthly payments and income to qualify |
| Downsizing | Frees equity outright, lowers running costs | Moving cost and emotional difficulty |
| Selling and renting | Maximum liquidity | Loses future appreciation, rent rises |
| State property tax deferral | Very low cost where available | Only addresses taxes |
| Family loan or shared arrangement | Flexible, keeps money in the family | Can strain relationships; document it properly |
When it makes sense, and when it does not
- Good fit: you intend to stay in the home for many years, need income, have no plan or need to leave the house to heirs, and can comfortably cover taxes, insurance and upkeep.
- Poor fit: you may move within five years, want to preserve the home for family, are being pressured by a salesperson, or are taking it to fund an investment or an annuity. Using reverse mortgage proceeds to buy financial products is a well-known abuse pattern.
Frequently asked questions
Can the bank take my house?
Not while you meet the obligations. The loan comes due if you stop living there, die, or fail to pay taxes and insurance.
What do my heirs get?
Whatever equity remains after the loan is repaid. They can also keep the home by repaying the loan balance or 95% of the appraised value, whichever is less. The clock is short: 30 days from the lender’s due-and-payable notice, sometimes extendable up to six months.
Is the money taxable?
Loan proceeds are generally not treated as income. It can, however, affect need-based benefits such as Medicaid, so take advice before drawing a large lump sum.
Can I change my mind?
Federal rules give a three-business-day right of rescission after closing (this does not apply to a HECM for Purchase, and you must notify the lender in writing). After that, you would repay the loan to exit.
Last updated September 2026. FHA limits, fees and rules change; verify on hud.gov and complete HUD-approved counselling before deciding. This is general information, not financial advice.
Sources
Rules and figures here come from HUD and the Consumer Financial Protection Bureau: HUD — Home Equity Conversion Mortgages, HUD Mortgagee Letter 2025-22 (the $1,249,125 limit for 2026), CFPB — When do I have to pay back a reverse mortgage loan?, CFPB — Can my heirs keep or sell my home after I die? and CFPB — How much does a reverse mortgage cost? The FHA lending limit is reset every year. Free HUD-approved counselling is required before you can apply, and the counsellor is not selling you anything.
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