Mortgages
What Is a Reverse Mortgage? How It Works, Costs, and Risks
A reverse mortgage converts home equity into cash without monthly repayments. How the loan grows, what you still owe, and when it becomes due.
A reverse mortgage is a loan secured against a home you already own, designed so that the lender pays you rather than the other way round. Nothing is repaid monthly. Interest and fees are added to the balance, which grows until the loan is settled — normally from the sale of the house.
Key takeaways
- A reverse mortgage pays you from your home equity; the balance grows over time instead of shrinking.
- Most US reverse mortgages are FHA-insured HECMs, restricted to borrowers aged 62 or older.
- There are no required monthly principal-and-interest payments, but taxes, insurance, and upkeep remain your obligation.
- The loan becomes due when the last borrower dies, sells, or stops living in the home as a principal residence.
- HECMs are non-recourse: the repayment can never exceed the home's value at sale.
In this guide
How a reverse mortgage actually works
You keep the title to your home. The lender registers a mortgage against it and advances funds up to a limit set by your age, the home's appraised value, and the interest rate. Older borrowers and more valuable homes support larger advances, because the lender expects fewer years of compounding before repayment.
- Lump sum: the full available amount at closing, usually at a fixed rate.
- Monthly advances: fixed payments for a set term or for as long as you live in the home.
- Line of credit: draw only what you need; the unused portion of a HECM credit line grows over time.
- A combination of the above, which is common in practice.
Who qualifies
For an FHA-insured Home Equity Conversion Mortgage — the dominant product in the United States — HUD requires the youngest borrower to be at least 62, the property to be the principal residence, and any existing mortgage to be small enough to be paid off with the proceeds. Applicants must complete counselling with a HUD-approved counsellor and pass a financial assessment showing they can keep up with property charges.
What it costs
Cost components of a typical HECM
| Cost | How it is charged | Effect on you |
|---|---|---|
| Origination fee | Charged at closing, capped by HUD | Usually financed into the loan |
| Mortgage insurance premium | Upfront plus an annual rate on the balance | Funds the non-recourse guarantee |
| Interest | Accrues on the drawn balance | Compounds; the largest long-run cost |
| Servicing and third-party fees | Appraisal, title, recording, possible monthly servicing fee | Reduces net proceeds |
What you are still responsible for
- Property taxes, paid on time and in full.
- Homeowners insurance, kept continuously in force.
- Any HOA or condominium dues.
- Maintaining the property in reasonable condition.
- Living in the home as your principal residence — an extended absence can trigger repayment.
When the loan is repaid
The balance falls due when the last surviving borrower dies, sells the home, or permanently moves out. Heirs usually choose between selling the house and settling the balance, or refinancing into a conventional mortgage to keep it. Because HECMs are non-recourse, if the balance exceeds the sale price, FHA insurance covers the shortfall and no other assets are pursued.
Sensible alternatives to weigh first
Reverse mortgage against the usual alternatives
| Option | Monthly payment | Main trade-off |
|---|---|---|
| Reverse mortgage | None required | Equity erodes; high upfront cost |
| Home equity loan / HELOC | Yes | Cheaper to set up, but requires income to service |
| Cash-out refinance | Yes | Resets the term; needs qualifying income |
| Downsizing | None | Releases equity outright, but you move |
If you want to see how a conventional alternative would look on paper, our home equity loan calculator and HELOC payment calculator model the payment side of the comparison.
Sources
- 01U.S. Department of Housing and Urban Development — Home Equity Conversion Mortgage (HECM) program
Official programme rules for FHA-insured reverse mortgages, including borrower obligations.
- 02Consumer Financial Protection Bureau — mortgage guidance and Ability-to-Repay rule
Federal consumer guidance on mortgages, disclosures, and lender underwriting obligations.
Frequently asked questions
Do you still own your home with a reverse mortgage?
Yes. Title stays in your name and the lender holds a mortgage lien, exactly as with a conventional loan. Ownership only changes if the loan is repaid through a sale.
Can you owe more than your house is worth?
Not with an FHA-insured HECM. It is a non-recourse loan, so repayment at sale is capped at the home's value and FHA insurance absorbs any shortfall. Non-FHA proprietary reverse mortgages should be checked for the same protection.
What happens to a reverse mortgage when you die?
The balance becomes due. Heirs typically sell the home to repay it, refinance into a standard mortgage to keep it, or hand it over via a deed in lieu. Servicers generally allow a limited period to arrange one of these.
Is reverse mortgage money taxable?
Loan proceeds are generally treated as borrowed funds rather than income in the US. Individual tax situations vary — confirm with a tax professional.
Editorial transparency
- Written by
- Legamoney Editorial Team — Editorial Team — finance, insurance, lending and consumer legal topics
- Reviewed by
- Not independently reviewed.
- How this was researched
- Written from the HUD HECM programme rules and CFPB consumer guidance. Amounts shown in examples are arithmetic illustrations, not quotes from any lender.
- Corrections
- Spotted an error? Tell us and we will correct and re-date the page. See our editorial policy.
- Advertising disclosure
- Ad placements are clearly labelled and never influence editorial judgement or the ordering of comparisons.
About the author
Legamoney is an independent publisher of explanatory guides on borrowing, insurance, personal finance and everyday consumer legal questions. Articles are written by the editorial team rather than by a single named contributor, and they are built from published rules and data from regulators and government agencies — not from opinion or industry marketing. Every guide lists the sources it was written from, shows its arithmetic in full where numbers are involved, and carries publication and update dates so you can judge how current it is. We do not sell financial products, take commission on referrals, or let commercial relationships influence coverage.
How this article was checked
- Every factual claim is traced to a named regulator, government agency, or the provider's own published terms before publication.
- Figures that change — rates, limits, thresholds — link to the primary source that publishes them rather than being quoted as a fixed number.
- All worked examples are arithmetic shown in full, so a reader can reproduce the result independently.
- Guides on money, insurance, and legal topics carry an explicit scope disclaimer and point to the regulated professional or free service a reader should use for personal advice.
- Corrections are made on the live page and the update date is changed; readers can report an error at any time via the contact page.
Primary sources we work from include Consumer Financial Protection Bureau, U.S. Department of Housing and Urban Development, Federal Housing Finance Agency, Freddie Mac Primary Mortgage Market Survey, Federal Reserve — Consumer Credit (G.19), National Association of Insurance Commissioners, Internal Revenue Service and Social Security Administration.
Covers: Consumer lending and mortgages · Insurance policy terms and coverage · Personal finance arithmetic and calculators · Primary-source verification and editorial standards
Disclaimer
Reverse mortgage rules, eligibility ages, and consumer protections differ by country and product. This article is general information, not financial advice. Speak to a HUD-approved counsellor or a licensed adviser before proceeding. Consult a qualified professional before acting on any information here. Read our full disclaimer.
