You are 68 years old. Your house is worth $400,000 and you owe nothing on it. Your retirement savings are thinner than you expected, and your Social Security check covers the basics but not the replacement car, the new roof, or the trip you promised your spouse ten years ago. You have hundreds of thousands of dollars in home equity and no income to access it. A retirement mortgage lets you turn that equity into cash without selling the house and without making a monthly payment.
A retirement mortgage, most commonly a reverse mortgage, is a loan available to homeowners aged 62 and older that allows them to borrow against their home equity and receive the proceeds as a lump sum, a line of credit, or monthly payments. No repayment is required until the borrower dies, sells the home, or permanently moves out. The loan is repaid from the sale of the home, and any remaining equity goes to the borrower or their heirs.
What a Reverse Mortgage Actually Is
A reverse mortgage is a loan secured by your home that works in the opposite direction of a traditional mortgage. Under a traditional mortgage, you borrow money, you make monthly payments, and your loan balance decreases over time while your equity increases. Under a reverse mortgage, you borrow money, you make no monthly payments, and your loan balance increases over time while your equity decreases. The lender is paying you. You are not paying the lender.
The most common type of reverse mortgage is the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration. HECMs account for approximately 95 percent of all reverse mortgages in the United States. The FHA insurance protects the lender if the loan balance exceeds the home’s value when the loan becomes due, and it protects the borrower by guaranteeing that the borrower or their heirs will never owe more than the home is worth at the time of repayment.
The loan does not become due until a maturity event occurs. The maturity events are: the borrower dies, the borrower sells the home, the borrower moves out for more than twelve consecutive months, or the borrower fails to pay property taxes or homeowners insurance. As long as the borrower lives in the home, pays the taxes and insurance, and maintains the property, no repayment is required. The borrower can live in the home for thirty years after taking out the reverse mortgage and never make a payment.
Who Qualifies for a Reverse Mortgage
The youngest borrower must be at least 62 years old. If a married couple owns the home together and one spouse is 62 but the other is 58, neither qualifies. Both must be 62 or older, or the younger spouse must be removed from the title, which creates its own risks. The older the borrower, the more they can borrow, because the lender’s risk is that the loan will not be repaid until the borrower dies or moves out. An 82-year-old borrower can access a higher percentage of their home’s equity than a 62-year-old borrower.
The home must be the borrower’s primary residence. Second homes and investment properties do not qualify. The home must be a single-family home, a two-to-four-unit property where the borrower occupies one unit, an FHA-approved condominium, or a manufactured home that meets FHA standards. The borrower must own the home outright or have a low mortgage balance that can be paid off with the reverse mortgage proceeds.
The borrower must undergo a financial assessment to determine their ability to pay property taxes, homeowners insurance, and home maintenance costs. The lender reviews the borrower’s income, credit history, and existing debts. If the borrower does not have sufficient income to cover these ongoing obligations, the lender may require a Life Expectancy Set-Aside, which is a portion of the loan proceeds reserved to pay future property taxes and insurance. This set-aside reduces the amount of cash the borrower can access but ensures the loan does not go into default for nonpayment of taxes or insurance.
The borrower must attend a counseling session with a HUD-approved housing counselor before the loan can be approved. The counseling session is mandatory and is designed to ensure the borrower understands how the reverse mortgage works, what the costs are, and what alternatives exist. The counselor is independent of the lender and does not receive a commission for referring borrowers to specific lenders.
How Much You Can Borrow
The maximum amount you can borrow under a HECM is determined by a formula set by HUD that considers the age of the youngest borrower, the current interest rate, and the home’s appraised value up to the FHA lending limit of $1,209,750 in 2026. A 62-year-old borrower with a $400,000 home might access approximately 40 to 45 percent of the home’s value, or $160,000 to $180,000. An 82-year-old borrower with the same home might access approximately 55 to 60 percent, or $220,000 to $240,000.
The loan proceeds can be taken in several ways. A lump sum provides the full available amount at closing, but the interest rate on the lump sum is typically higher than on other disbursement options. A line of credit allows the borrower to draw funds as needed, and the unused portion of the line of credit grows over time at the same rate as the loan’s interest rate. Monthly payments provide a steady income stream for as long as the borrower lives in the home under a tenure payment plan, or for a fixed number of years under a term payment plan. A combination of these options is also available.
Existing mortgages must be paid off with the reverse mortgage proceeds. If you owe $50,000 on a traditional mortgage and qualify for a $180,000 reverse mortgage, the first $50,000 pays off the existing mortgage, and the remaining $130,000 is available to you. The reverse mortgage must be in first lien position, meaning no other mortgage can have priority over it.
What a Reverse Mortgage Costs
Reverse mortgages carry higher upfront costs than traditional mortgages. The FHA upfront mortgage insurance premium is 2 percent of the home’s appraised value or the FHA lending limit, whichever is less. On a $400,000 home, that is $8,000. The annual mortgage insurance premium is 0.5 percent of the outstanding loan balance, added to the loan each month. Origination fees are capped by HUD at the greater of $2,500 or 2 percent of the first $200,000 of the home’s value plus 1 percent of the value above $200,000, up to a maximum of $6,000. Third-party closing costs, including appraisal, title insurance, and recording fees, typically run $2,000 to $3,000.
Most of these costs are financed into the loan, meaning the borrower does not pay them out of pocket at closing. They are added to the loan balance and accrue interest over time. This makes reverse mortgages appear less expensive at closing than they actually are over the life of the loan. A borrower who takes out a reverse mortgage and lives in the home for twenty years will pay far more in accumulated interest and insurance premiums than the upfront costs would suggest.
The interest rate on a HECM is adjustable and is based on an index plus a margin set by the lender. The rate adjusts monthly or annually depending on the loan program. Because no payments are made, interest accrues on the loan balance and compounds over time. A $180,000 reverse mortgage at a 4 percent annual rate grows to approximately $395,000 after twenty years if no payments are made and no additional draws are taken.
What Happens to the House When You Die
When the borrower dies, the reverse mortgage becomes due. The heirs have several options. They can sell the home, pay off the loan balance from the sale proceeds, and keep any remaining equity. They can refinance the reverse mortgage into a traditional mortgage in their own name and keep the home. They can pay off the loan balance from other funds and keep the home free and clear. Or they can sign the deed over to the lender in a deed-in-lieu of foreclosure, which satisfies the debt without a foreclosure proceeding on the heirs’ credit record.
The heirs will never owe more than the home is worth. The FHA insurance guarantees that if the loan balance exceeds the home’s value at the time of repayment, the lender absorbs the loss, and the heirs owe nothing. This is called the non-recourse feature of the HECM program. The heirs can simply walk away from the home with no personal liability for the loan.
The heirs have up to six months to settle the loan after the borrower’s death, with the possibility of two three-month extensions if they are actively working to sell the home or obtain financing. During this period, the heirs are responsible for maintaining the property and paying property taxes and insurance. If the heirs take no action and the loan remains unpaid, the lender will foreclose.
Alternatives to a Reverse Mortgage
A home equity line of credit, or HELOC, allows you to borrow against your equity and make interest-only payments during the draw period. You must qualify based on your income and credit score, which many retirees cannot do. If you can qualify, a HELOC typically has lower upfront costs than a reverse mortgage and leaves more equity for your heirs. The risk is that the HELOC must be repaid, and if you cannot make the payments, the lender can foreclose.
A cash-out refinance replaces your existing mortgage with a larger one and gives you the difference in cash. Like a HELOC, you must qualify based on income and credit, and you must make monthly payments. If you have substantial retirement income, a cash-out refinance may offer a lower interest rate than a reverse mortgage and preserve more equity for your heirs.
Selling the home and downsizing converts all of your equity to cash without debt. You sell your $400,000 home, buy a $250,000 home, and have $150,000 in cash after transaction costs. You have no loan, no payments, and full control of the proceeds. The downside is that you must move, which many retirees are unwilling to do. If staying in the home is your priority, a reverse mortgage may be the only option that allows you to access your equity without moving.
Frequently Asked Questions
What percentage of my home’s value can I borrow with a reverse mortgage?
A 62-year-old borrower can typically access 40 to 45 percent of the home’s value. An 82-year-old borrower can typically access 55 to 60 percent. The exact percentage depends on the youngest borrower’s age, the current interest rate, and the FHA lending limit. The older you are, the more you can borrow. The higher the interest rate, the less you can borrow. HUD publishes updated principal limit factor tables that determine the exact percentage for each age and rate combination.
Can the lender take my house if I outlive the loan?
No. There is no term limit on a reverse mortgage. As long as you live in the home, pay property taxes and homeowners insurance, and maintain the property, the loan does not become due regardless of how long you live or how high the loan balance grows. The FHA insurance covers the lender if the loan balance exceeds the home’s value. You cannot outlive a reverse mortgage.
Is a reverse mortgage better than a HELOC?
It depends on your income. If you have sufficient retirement income to qualify for a HELOC and make the required payments, a HELOC typically has lower upfront costs and preserves more equity. If you do not have sufficient income to qualify for a HELOC or make payments, a reverse mortgage may be your only option for accessing your equity without selling. A reverse mortgage requires no monthly payments. A HELOC does. The reverse mortgage is more expensive over time. The HELOC is harder to qualify for.
What happens if my spouse is under 62 when I take out a reverse mortgage?
If your spouse is under 62, they cannot be a co-borrower on the HECM. You can take out the loan in your name alone, but if you die before your spouse, the loan becomes due, and your spouse may be forced to sell the home. A non-borrowing spouse can remain in the home after the borrower’s death under certain conditions if the loan was originated after August 2014, but this protection applies only if the non-borrowing spouse continues to pay property taxes and insurance and does not remarry or move out. The safer option is for both spouses to wait until the younger spouse turns 62.
How is a retirement mortgage different in the UK?
In the United Kingdom, a retirement interest-only mortgage, or RIO, is a different product from an American reverse mortgage. A RIO allows borrowers aged 55 and older to make interest-only payments each month for the life of the loan, with the principal repaid when the home is sold. Unlike a reverse mortgage, a RIO requires monthly interest payments. The borrower does not accumulate a growing loan balance. The loan amount stays constant, and only the interest must be paid. RIO mortgages are available in the UK but not in the United States, where the reverse mortgage is the dominant retirement mortgage product.
The Short Version
A reverse mortgage turns your home equity into cash without requiring you to sell or make monthly payments. The lender pays you. The loan balance grows over time. The loan is repaid when you die, sell, or move out. Your heirs inherit the home subject to the loan and can pay it off, sell the home, or walk away with no personal liability.
The older you are, the more you can borrow. The longer you live, the more interest accumulates. The upfront costs are high, but they are financed into the loan. The mandatory counseling session is not a formality. It is your opportunity to understand what you are signing. A reverse mortgage is not a scam. It is a tool. Use it when you need your equity more than your heirs need the house. Do not use it because a television commercial told you it was free money. The money costs you the equity in your home, plus interest, plus FHA insurance premiums. Know what you are giving up before you sign.
