Reverse Mortgage

Access Home Equity in Retirement Without a Required Monthly Mortgage Payment

A reverse mortgage may allow eligible homeowners to access part of their home equity without making a required monthly mortgage payment. For some retirees, this can help improve monthly cash flow, supplement retirement income, pay off an existing mortgage, or create more financial flexibility.

A reverse mortgage is not the right fit for everyone. It should be reviewed carefully based on your age, home equity, property, retirement goals, costs, and long-term plans for the home.

Reverse Mortgage Options May Help You:

• Access a portion of your home equity

• Eliminate an existing monthly mortgage payment, if enough equity is available

• Improve monthly cash flow in retirement

• Create a line of credit, monthly payment option, lump sum, or combination depending on program structure

• Stay in your home as long as loan obligations are met

• Use home equity without selling the property

What Is a Reverse Mortgage?

A reverse mortgage is a loan that allows eligible homeowners to convert part of their home equity into loan proceeds. Unlike a traditional mortgage, a reverse mortgage does not require a monthly principal and interest mortgage payment.

The most common type of reverse mortgage is the Home Equity Conversion Mortgage, often called a HECM, which is insured by the Federal Housing Administration. HUD states that the HECM program allows homeowners to withdraw a portion of their home equity and use the funds for needs such as home maintenance, repairs, or general living expenses.

The loan generally becomes due when the borrower sells the home, no longer occupies the home as a primary residence, or passes away.

Who May Qualify for a Reverse Mortgage?

Reverse mortgage eligibility depends on the loan program and full borrower scenario. For an FHA-insured HECM, HUD materials state that the borrower must generally be 62 years of age or older, own the property, and occupy it as a primary residence.

Common requirements may include:

• Borrower age requirement

• Sufficient home equity

• Primary residence occupancy

• Property eligibility

• Ability to keep property taxes and homeowner’s insurance current

• Ability to maintain the home

• Completion of required reverse mortgage counseling

HUD’s HECM counseling materials state that HECM counseling is required before a certificate of counseling can be issued.

How a Reverse Mortgage Works

With a reverse mortgage, the homeowner borrows against a portion of the home’s equity. The loan proceeds may be available in different ways depending on the program, borrower qualifications, and property details.

Possible payout options may include:

• Lump sum

• Monthly payments

• Line of credit

• Combination of available options

The borrower does not make a required monthly principal and interest mortgage payment, but the loan balance typically increases over time as interest, mortgage insurance, and fees are added to the loan balance.

Homeowners are still responsible for important ongoing obligations, including:

• Property taxes

• Homeowner’s insurance

• Home maintenance

• HOA dues, if applicable

• Occupying the home as the primary residence

HUD specifically notes that HECM borrowers may live in their homes indefinitely as long as property taxes and homeowner’s insurance are kept current.

Why Homeowners Consider a Reverse Mortgage

A reverse mortgage may be worth reviewing when a homeowner wants to use home equity as part of a retirement strategy.

Common reasons homeowners consider a reverse mortgage include:

• Reducing or eliminating an existing monthly mortgage payment

• Supplementing retirement income

• Improving monthly cash flow

• Paying for home repairs or accessibility improvements

• Creating a standby line of credit

• Staying in the home longer

• Avoiding the need to sell the home immediately

The goal should not be to use a reverse mortgage casually. The goal is to determine whether using home equity improves the borrower’s overall retirement plan.

Reverse Mortgage Benefits

A reverse mortgage may offer:

• No required monthly principal and interest mortgage payment

• Access to a portion of home equity

• Flexible payout options depending on program structure

• Ability to remain in the home while meeting loan obligations

• Potential cash-flow improvement in retirement

• FHA-insured HECM option for eligible borrowers

This can be helpful for some homeowners, especially when the home is one of their largest assets but monthly income is limited.

Important Responsibilities

A reverse mortgage does not remove the homeowner’s responsibilities.

Borrowers must still:

• Pay property taxes

• Maintain homeowner’s insurance

• Maintain the home

• Follow occupancy requirements

• Keep up with HOA dues, if applicable

• Comply with the loan terms

If these obligations are not met, the loan could become due and payable. CFPB specifically warns homeowners to understand what can happen if they cannot pay property taxes or insurance or if they receive a default or foreclosure notice.

Reverse Mortgage Costs

Reverse mortgages can include upfront and ongoing costs.

Costs may include:

• Origination fees

• Appraisal and title fees

• Closing costs

• Mortgage insurance premiums for FHA-insured HECMs

• Servicing fees, if applicable

• Interest added to the loan balance

CFPB says reverse mortgage upfront costs may include origination fees, real estate closing costs, and an initial FHA mortgage insurance premium.

This is why it is important to compare the reverse mortgage against other options before moving forward.

Reverse Mortgage vs Traditional Mortgage

A traditional mortgage requires monthly payments of principal and interest.

A reverse mortgage works differently. Instead of making required monthly principal and interest payments, the borrower may receive proceeds from home equity or eliminate an existing required mortgage payment if the reverse mortgage pays off the current loan.

However, the loan balance can grow over time, and the home equity available to the borrower or heirs may decrease.

This is one of the biggest tradeoffs and should be discussed clearly before deciding.

Reverse Mortgage vs HELOC or Cash-Out Refinance

A reverse mortgage is not the only way to access home equity.

Other options may include:

• HELOC

• Home equity loan

• Cash-out refinance

• Asset-based mortgage options

• Selling or downsizing

A HELOC, home equity loan, or cash-out refinance usually requires monthly payments and income qualification. A reverse mortgage may not require monthly principal and interest payments, but it has its own costs, eligibility rules, and long-term equity considerations.

The best option depends on income, assets, age, equity, property plans, and retirement goals.

When a Reverse Mortgage May Not Be the Right Fit

A reverse mortgage may not be the right fit if:

• You plan to move soon

• You want to preserve as much equity as possible for heirs

• You cannot reliably pay property taxes or homeowner’s insurance

• You do not plan to stay in the home as your primary residence

• The costs outweigh the benefits

• A different loan option or downsizing strategy would work better

CFPB has warned that reverse mortgage costs can exceed certain expected benefits in some strategies and may reduce home equity available later in life.

That does not mean reverse mortgages are bad. It means they need to be evaluated honestly.

Required Reverse Mortgage Counseling

For FHA-insured HECM reverse mortgages, borrowers must complete counseling with an approved reverse mortgage counselor. The purpose is to help borrowers understand how the loan works, what it costs, what alternatives may exist, and what responsibilities continue after closing.

CFPB’s reverse mortgage discussion guide says a qualified reverse mortgage counselor can help borrowers learn more, and HUD’s counseling handbook explains that HECM counseling is required before a certificate can be issued.

Reverse Mortgage FAQs

What is a reverse mortgage?

A reverse mortgage is a loan that allows eligible homeowners to access part of their home equity without making a required monthly principal and interest mortgage payment.

What is a HECM?

A HECM, or Home Equity Conversion Mortgage, is the FHA-insured reverse mortgage program. HUD describes it as FHA’s reverse mortgage program for withdrawing a portion of home equity.

How old do you need to be for a reverse mortgage?

For an FHA-insured HECM, borrower materials state that the borrower must generally be at least 62 years old.

Do I still own my home with a reverse mortgage?

Yes. The borrower remains the homeowner, but must continue meeting the loan obligations, including property taxes, insurance, maintenance, and occupancy requirements.

Do I have to make monthly mortgage payments?

A reverse mortgage does not require monthly principal and interest payments, but borrowers must continue paying property taxes, homeowner’s insurance, and other required property charges.

Can a reverse mortgage pay off my current mortgage?

Yes, if there is enough equity available. Many borrowers use reverse mortgage proceeds to pay off an existing mortgage and eliminate the required monthly mortgage payment.

Can I lose my home with a reverse mortgage?

Yes, if loan obligations are not met. For example, failure to pay property taxes, maintain insurance, maintain the home, or meet occupancy requirements can create serious problems, including default.

What happens when the homeowner passes away?

The loan generally becomes due when the borrower dies, sells the home, or no longer occupies the property as a primary residence. Heirs may have options depending on the loan balance, home value, and program rules.

Is a reverse mortgage right for everyone?

No. A reverse mortgage can be helpful in the right situation, but it can also be expensive and may reduce home equity over time. It should be compared carefully with other options.