The short answer
A reverse mortgage lets a homeowner 62 or older borrow against the equity in their home without making monthly mortgage payments, and the FHA-insured version is called a Home Equity Conversion Mortgage, or HECM. The borrower must own the home, live in it as a primary residence and complete counseling with an independent HUD-approved counselor. The lender does not take the home while the borrower lives there, but the borrower must still pay property taxes and homeowners insurance and keep the home in repair, and failing to do so can lead to foreclosure. The loan balance grows with interest and fees. It becomes due when the last borrower dies, sells or stops living in the home. Heirs can keep the home by repaying the balance or 95 percent of its appraised value, whichever is less, and they do not owe more than that. A non-borrowing spouse has protections only if named in the loan documents.
How the loan works
In a traditional mortgage, you borrow and pay it down. In a reverse mortgage, the lender pays you, as a lump sum, a monthly payment or a line of credit, and the loan balance rises because interest and fees are added to it. You make no monthly mortgage payment. The loan is repaid, usually from the sale of the home, when the last borrower dies, moves out for good or sells.
The FHA-insured Home Equity Conversion Mortgage is the most common type. To qualify, a borrower must be at least 62, own the home and live in it as a primary residence, and meet with a HUD-approved counselor, who must be independent of the lender. Counseling is a requirement, not a sales call, and it is where the obligations are explained. A spouse who is not on the loan is covered by separate rules, discussed below.
Myth: the bank takes your house
The lender does not take the home while you live in it and meet the loan terms. You keep the title. What the loan does is put a lien on the home, and the lien is paid when the loan comes due.
The loan terms matter, though. You must pay property taxes and homeowners insurance, keep the home in good repair and live there as your primary residence. A borrower who falls behind on taxes or insurance can be declared in default and face foreclosure, even though no monthly payment is owed on the loan. The lender may require part of the proceeds to be set aside to pay future taxes and insurance, and for loans made since 2015 it assesses whether you can cover those costs. Be honest with yourself about that budget before you apply.
Myth: the loan is free money
The balance grows. Interest, mortgage insurance premiums, closing costs and servicing fees are added each month, so the amount owed can be much larger in 10 or 15 years than the amount you borrowed. That also means less equity left in the home, which matters if you may need to sell to pay for care.
| Feature | What to know |
|---|---|
| Monthly payment | None required, but you pay taxes, insurance and upkeep |
| Interest and fees | Added to the balance, so the debt grows over time |
| Counseling | Required, with an independent HUD-approved counselor |
| When it is due | When the last borrower dies, sells or stops living in the home |
| Who can stay | The borrower, and a spouse named in the loan documents who meets the conditions |
| If the balance exceeds the home's value | Heirs owe no more than the lesser of the balance or 95% of the appraised value |
The lender cannot make you buy an annuity or another financial product as a condition of the loan. Treat any pitch that links the two as a warning.
Myth: your heirs inherit a debt
When the last borrower dies, the loan becomes due. Heirs have 30 days after receiving the notice to decide whether to buy, sell or hand the home to the lender, and the lender can approve extensions if they are actively working on it. To keep the home, heirs repay the balance or 95 percent of the appraised value, whichever is less. If the home sells for less than the balance, the mortgage insurance covers the difference, so heirs do not owe more than the home is worth. If the home is worth more than the loan, the heirs keep the difference.
The practical risk is not debt. It is time. Heirs who do not know the rules can lose the chance to keep the home, so give them the lender's contact information and the loan papers.
A spouse who is not on the loan
This is where many families run into trouble. For loans with FHA case numbers assigned on or after August 4, 2014, a spouse who is not a borrower can stay in the home after the borrower dies only if the spouse was named as a non-borrowing spouse in the loan documents, lived in the home at closing and keeps living there and meeting the loan terms. Older loans follow different rules, and a spouse who is left off the paperwork may have to repay the loan or leave. If your spouse is younger than 62, ask the counselor how the loan will treat them, and put both names on the loan documents where the rules allow.
Alternatives to compare
A reverse mortgage is one of several ways to use a home's value, and the others have different trade-offs. Selling and moving to a smaller or cheaper place frees equity with no ongoing debt. A home equity loan or line of credit gives you cash with monthly payments, which suits someone with steady income. Property tax deferral or exemption programs for older homeowners, which many states offer, cut the cost of staying. Programs for energy bills, weatherization and home repairs may solve the problem you were about to borrow for. Ask the counselor to walk through each before you decide.
How it interacts with benefits and taxes
Loan proceeds are borrowed money, and they are generally not treated as taxable income. They do not reduce Social Security or Medicare. Needs-based programs are different: for Supplemental Security Income and Medicaid, money you borrow and leave in the bank can count as a resource in the following month, so a lump sum can affect eligibility. Ask the agency and the counselor before you take a large advance.
Our guide to Medicaid estate recovery explains a separate claim that can follow long-term care, and our guide to nursing home costs shows why the equity in a home can matter later. Property tax relief programs for older homeowners, which many states offer, can be an alternative that does not add to your debt.
Example (hypothetical): a widow and a line of credit
A 72-year-old widow owns her home outright and her roof needs replacing. She meets with a HUD-approved counselor, who explains that her taxes and insurance remain her responsibility and the balance will grow. She takes a line of credit instead of a lump sum and draws only what the roof costs. Her daughter, who will inherit, is told the lender's number and the 30-day rule. The widow budgets for taxes and insurance and keeps the home in repair.
Questions about reverse mortgages
Do I still own my home with a reverse mortgage?
Yes. You keep the title and live there as long as you meet the terms. The lender has a lien that is paid when the loan comes due.
Can I lose the home even though I owe no monthly payment?
Yes. If you stop paying property taxes or insurance, stop maintaining the home or no longer live there as your primary residence, the loan can be declared in default.
Can a reverse mortgage be used to buy a home?
A version of the HECM can be used to buy a primary residence, with a larger down payment than a traditional mortgage. It has the same age, counseling and property-charge rules, and you should ask a counselor if it fits.
Who can I talk to before deciding?
A HUD-approved housing counselor, at 1-800-569-4287 or hud.gov/findacounselor. The counseling is required for a HECM, is independent of the lender and is a good time to ask every question.
What to confirm before signing
Loan limits, fees and rules change, and the lender, the servicer and FHA decide each loan. This is general information and not financial or legal advice. A HUD-approved counselor and an elder law attorney can review the loan papers with you and your family.
Official sources
Before you apply
Write down what you need the money for, what you pay in taxes and insurance each year and who will live in the home after you. Then call 1-800-569-4287 for a HUD-approved counselor and ask what alternatives fit your situation before you speak to any lender.
