Your mortgage payment is likely the biggest expense in your household budget. In retirement, it can be even more of a financial strain. It’s especially frustrating when your home, your greatest asset, has equity you can’t access without a loan like a Home Equity Line of Credit (HELOC).
A reverse mortgage offers a solution that unlocks equity, giving you access to funds and eliminating your monthly mortgage payment altogether.
If you own your home and are over 61, a reverse mortgage can turn home equity into usable money to cover everyday expenses and unexpected costs, or just enjoy retirement. A reverse mortgage is a proven method many in or near retirement use to access equity.
So, what is a reverse mortgage, and how does it work? It can seem confusing or complicated to navigate, and we want to bring clarity to the subject. In this article, we break it down into simple terms.
What a Reverse Mortgage Is
A reverse mortgage is more straightforward than it seems. It allows you to turn your home’s equity into money you can use while continuing to live in your home and takes away the stress of monthly mortgage payments. A reverse mortgage is designed with retirees in mind to offer financial flexibility.
This type of mortgage offers a secure way to access your home’s equity with simple and clear requirements, which we’ll explore later in this article. In short, the homeowner must be 62 or older, own their home outright, or have equity, and the home must be their primary residence.
Common reasons for obtaining a reverse mortgage:
- Supplement retirement income
- Cover healthcare costs
- Home maintenance or repair expenses
- Funds for emergencies or unexpected events
- Travel or fulfill life goals
The cost of living continues to rise, including medical care and emergency expenses. As we age, these expenses become an even bigger concern. A reverse mortgage can offer financial relief by providing access to your home’s equity. Depending on your needs, you can choose monthly payments, a lump sum, a line of credit, or a combination.
Types of Reverse Mortgages
Not all reverse mortgages are the same. There are a few options available, each designed to meet different needs and financial situations. Understanding these options can help you choose the right one for your needs. Below, we cover the most popular reverse mortgage products and how they work.
For a side-by-side comparison of loan types, see the chart at the bottom of this section.
Home Equity Conversion Mortgage (HECM)
The most common type of reverse mortgage, also the product that made the term “reverse mortgage” so well known, is the HECM loan. Because this type of loan is backed by the Federal Housing Administration (FHA), you are protected from owing more than the house is worth when it’s time to repay.
A good option for borrowers with equity in their house who would benefit from a supplement to their income or funds to cover expenses.
HECM for Purchase
You might be ready to downsize but have an interest in obtaining a reverse mortgage. A HECM for purchase allows you to tap into your equity to help fund the purchase of a new property. You will have the same benefits of a traditional HECM loan with no monthly mortgage payments and FHA-backed loan protection.
A good option for borrowers who have equity in their home and would prefer to downsize or move to a home more appropriate for aging in place.
Jumbo Reverse Mortgage
While HECM loans are subject to the FHA HECM loan limits, with a jumbo reverse mortgage, homeowners can borrow up to $4 million depending on their qualifications. Like other reverse mortgages, there are no monthly loan payments. However, because of the larger amounts, the interest rates can be higher than other types of loans.
A jumbo loan doesn’t have FHA protections, but it is a non-recourse loan, meaning the loan repayment amount won’t exceed the property’s assessed value.
A good option for homeowners who want to access more than traditional HECM loans allow.
Comparing Reverse Mortgage Types
| HECM | HECM for purchase | Jumbo Reverse Mortgage | |
| Purpose | Access equity without selling your home | Buy a new home while accessing reverse mortgage benefits | Access equity in high-value homes |
| Primary use | Supplement retirement income, cover expenses | Downsize or move to a home better suited for retirement | Supplement retirement income, cover expenses for high-value properties |
| Eligibility age | 62 and older | 62 and older | Varies by lender (often 55 or older) |
| Property type | Single-family, FHA-approved condos, or manufactured homes meeting FHA standards | Single-family, FHA-approved condos, or manufactured homes meeting FHA standards | High-value homes, not always FHA-standards |
| Loan limit | Up to $1,209,750 (2025 limit) | Up to $1,209,750 (2025 limit) | Over $1 million (varies by lender) |
| FHA backed | Yes | Yes | No |
Understanding the Tradeoffs
There are many factors to consider when making any financial decision. When you are in or approaching retirement and dealing with what is typically your largest asset, your home, it is even more important to research your options and make an informed decision carefully.
We recommend our guide to learn more, but here are a few pros and cons:
Reverse Mortgage Pros
- Access cash without selling your home
- No monthly mortgage payments
- Flexible payout options
- Non-recourse feature for borrower protection
Reverse Mortgage Cons
- Reduces home equity over time
- Costs can add up (interest, fees, insurance)
- It may affect inheritance plans or financial goals
How a Reverse Mortgage Works
To understand how a reverse mortgage works, we will explain the process, from approval and how you receive funds to how and when the mortgage loan needs to be paid back.
With a reverse mortgage, you borrow money against the equity in your home. Equity is the difference between the amount owed on your current mortgage and the market assessment for the value of your home. A reverse mortgage can be an attractive option if you own your home outright or have equity. Instead of making monthly payments to a lender, the lender pays you.
More specifically, the reverse mortgage lender takes the equity in your home and pays off the remaining balance of your traditional mortgage. With the amount left over, the lender disburses a tax-free amount to you, depending on your loan type and payout preferences.
The amount you have access to depends on many factors. In the most common, a Home Equity Conversion Mortgage (HECM), the principal limit is based on:
- Age of those on the mortgage documents
- Interest rates
- Home’s value and equity
- HECM lending limit for that year (in 2025, the HECM limit is $1,209,750)
Generally, the older you are and the more equity you have, the more you can borrow with lower interest. A mortgage broker can help you determine the amount you could borrow based on your situation.
Flexible Borrowing Options
Reverse mortgages offer flexible ways for you to receive payments. These include:
- Lump sum payout: Ideal for major expenses, like home repairs, medical bills, or paying off debts.
- Monthly payments: A once-a-month payout that can supplement retirement income.
- Line of credit: Access funds as needed, with the bonus of unused amounts growing over time.
- Combination: Mix and match the above methods to meet current and future financial needs.
Each option lets you customize your reverse mortgage to match your needs.
Repayment of a Reverse Mortgage
Repayment of a reverse mortgage occurs when one of the following happens:
- The home is sold
- The home is no longer the primary residence of the borrower
- The primary owner or borrower passes away
When one of these occurs, the loan balance is due to the lender, including the amount borrowed, interest, and any fees. In most cases, the home is sold to repay the loan.
Borrower Protections
With frequent concerns about repayment, reverse mortgages have built-in protections for you as the borrower. One common question is what happens if the amount owed ends up being more than the home is worth. It is a legitimate fear but unnecessary. A benefit of a reverse mortgage is non-recourse protection: you and your beneficiaries won’t owe an amount more than the home’s assessed value when it’s sold, even if the loan balance exceeds it. It’s a reassuring safeguard.
Interest and Fees
While you pay no monthly payments, interest and fees accrue on the loan balance. These costs are added to the total amount owed and are repaid when the loan comes due.
Borrower Responsibilities
While interest and fees accrue over time, you will make no monthly mortgage payments. Borrowers are only responsible for staying current on property taxes, insurance, and basic home maintenance.
A reverse mortgage can offer a practical way to access your home’s value while still living there. With flexible payout options and built-in protections, it can be a smart choice for retirees looking to enhance their financial lives.
Reverse Mortgage Requirements
The qualifications for a reverse mortgage vary. HECM and HECM for purchase loans generally have the same requirements, while jumbo reverse mortgage loans differ. Some of the information is included in the chart above, but here is a further look:
- Age: 62 and older; 55+ in some states for a jumbo reverse mortgage.
- Residency: Must be your primary residence
- Home ownership status: Own the home outright or have equity.
- Property type: Single-family home, a 2–4-unit dwelling where the borrower resides in one unit, or an FHA-approved condo or manufactured home; for jumbo loans, there are different qualifications.
- Property condition: Should be in a well-kept condition.
- Financial assessment: There is no general credit score requirement for reverse mortgages. Instead, lenders look at the condition of your home, if you pay your property taxes, and the status of your homeowner’s insurance, among other items.
- Counseling: Every borrower goes through a mandatory counseling session with a third-party counselor approved by the U.S. Department of Housing and Urban Development (HUD) to ensure you fully understand your loan’s terms.
- Financial obligations: Ability to pay upkeep on the home, property taxes, homeowner’s insurance, and homeowner’s association fees, if applicable.
Frequently Asked Questions
- Can you sell a home that has a reverse mortgage?
- Yes, the proceeds from the sale will go to pay off the reverse mortgage, and the remaining amount will be disbursed to the homeowner or beneficiaries.
- When do I have to pay off a reverse mortgage?
- A reverse mortgage must be repaid if one of the following things happen:
- The house is sold
- The house is no longer the primary residence
- The borrower passes away
- A reverse mortgage must be repaid if one of the following things happen:
- How do you pay off a reverse mortgage?
- The balance on a reverse mortgage, including the borrowed amount, interest, and fees, is usually paid off upon the home’s sale.
- What happens if the loan balance exceeds the home’s value?
- Reverse mortgages are non-recourse loans, meaning the final loan balance cannot exceed the home’s value.
- Can I outlive a reverse mortgage?
- No, if you or another borrower on the reverse mortgage lives in the home full-time, no repayment is due on the loan.
Final Thoughts
A reverse mortgage can be a powerful tool if you are in or nearing retirement, have equity in your home, and would benefit from having additional money to help with expenses. Like any big financial decision, it is important to consider all the facts before making an informed decision.
Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.