What Is a Reverse Mortgage? How It Works, Requirements & Costs

A reverse mortgage is a home loan that lets homeowners 62 or older convert part of their equity into cash without selling the property or making monthly payments. The lender pays you; you repay the loan plus interest when you permanently leave the home.

The most common type is a Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration. Unlike a traditional mortgage or home equity loan, you receive funds and owe nothing until the loan matures.

Repayment happens when you sell, move into assisted living for 12+ months, or pass away. At that point, you or your heirs sell the house or refinance to pay off the loan.

You remain responsible for property taxes, homeowners insurance and maintenance. Fail to pay those, and the lender can call the loan due.

• Age: At least 62 years old.
• Occupancy: The home is your primary residence.
• Equity: You own the home outright or owe a small enough balance that reverse-mortgage proceeds can pay it off at closing.
• Property type: Single-family home, 2–4 unit property (you live in one), FHA-approved condo or manufactured home built after June 1976.
• Financial assessment: Lenders review income, assets and credit to confirm you can pay taxes and insurance.

No minimum credit score is published, but lenders want proof you will not default on property charges.

The principal limit depends on three factors:

1. 1Age of the youngest borrower: Older borrowers receive a higher percentage of home value.
2. 2Home value: Up to the FHA HECM limit of $1,149,825 in 2026.
3. 3Interest rate: Lower rates yield higher loan amounts.

Typically, you can access 40–75 % of your home's appraised value, minus any existing mortgage balance and closing costs.

Use an online reverse mortgage calculator to model your scenario with real rates and fees.

Reverse mortgage interest compounds monthly on the outstanding balance. You never pay monthly; interest simply adds to what you owe.

• Fixed rate: Locked for the life of the loan.
• Adjustable rate: Tied to an index (usually one-month LIBOR or CMT) plus a margin of 2–3 %.

As of early 2026, adjustable HECM rates average 6.5–7.5 % APR; fixed rates run 7–8 % APR. Rates change weekly based on Treasury yields and lender margins.

Upfront costs include:

• Origination fee: Lesser of $6,000 or 2 % of the first $200,000 plus 1 % above that.
• FHA mortgage insurance premium: 2 % of appraised value at closing, plus 0.5 % annual premium on the loan balance.
• Appraisal, title, recording: $2,000–$4,000 combined.

1. 1Complete HUD counseling: Find a HUD-approved agency at hud.gov/counseling. The session costs $0–$125 and covers risks, alternatives and responsibilities.
2. 2Compare lenders: Get quotes from at least three HECM lenders. Compare interest rates, margins, origination fees and customer reviews.
3. 3Submit your application: Provide income documentation, tax returns, homeowners insurance proof and a list of assets.
4. 4Undergo financial assessment: The lender verifies you can afford property taxes and insurance. If reserves are low, the lender may set aside loan funds in a "Life Expectancy Set Aside" to pay those bills.
5. 5Order appraisal: An FHA-approved appraiser inspects the property and determines market value.
6. 6Review loan estimate: The lender sends a Loan Estimate showing principal limit, fees, interest rate and projected balance over time.
7. 7Close the loan: Sign documents, pay or finance closing costs, and receive your funds. You have a three-day right to cancel after closing.
8. 8Receive disbursement: Lump sum arrives within days; line of credit or monthly payments begin per your election.

After closing, continue paying property taxes, insurance and HOA dues on time. The lender monitors compliance annually.

A home equity loan or HELOC requires monthly payments and good credit but may offer higher borrowing limits for younger homeowners. Reverse mortgages make sense if you want to tap equity without monthly obligations and plan to stay in the home long-term.

Letting property taxes or insurance lapse: The lender will declare default, demand full repayment or foreclose. Set up auto-pay or work with the lender to establish a set-aside.

Misunderstanding non-borrowing spouse rules: If one spouse is under 62 and not on the loan, that spouse may lose the right to stay in the home if the borrowing spouse dies first. HECM rules now offer some protections, but the non-borrowing spouse receives no new loan proceeds.

Ignoring the impact on heirs: Your children inherit less equity. If they want to keep the house, they must repay the loan balance—often by refinancing or selling.

Not shopping lenders: Origination fees and interest-rate margins vary. A 0.25 % difference in margin costs thousands over ten years.

A reverse mortgage is worth it if you:

• Are 62+ with significant equity and limited retirement income.
• Plan to stay in the home at least five years (to justify closing costs).
• Have no better source of cash (Social Security delay strategies, Roth conversions, part-time work).
• Understand that heirs will inherit less.

It is not worth it if you:

• Might move soon or enter assisted living within a few years.
• Can cover expenses by downsizing or renting out a room.
• Have children who expect to inherit the home debt-free.
• Qualify for a HELOC or cash-out refinance at a lower rate and can afford monthly payments.

The loan becomes due and payable when:

• You sell the home.
• You move out for 12+ consecutive months.
• The last borrower passes away.
• You fail to pay property taxes, insurance or maintain the property.

At that point, you or your heirs have up to six months (with possible extensions) to repay. Options include:

1. 1Sell the home: Proceeds pay off the loan; any surplus goes to you or the estate.
2. 2Refinance: Heirs can take out a new mortgage for 95 % of the appraised value (or the loan balance, whichever is less) to keep the house.
3. 3Pay cash: If heirs have the funds, they pay the balance and keep the home.
4. 4Walk away: If the balance exceeds the home value and heirs do not want the property, FHA insurance covers the lender's loss. Heirs owe nothing beyond the home itself (non-recourse loan).

What is a reverse mortgage and how does it work?

A reverse mortgage is a loan against your home equity that requires no monthly payment while you live there. The lender pays you, interest accrues on the balance, and you or your heirs repay the loan when you sell, move permanently or pass away.

Can you lose your home with a reverse mortgage?

Yes, if you fail to pay property taxes, homeowners insurance or maintain the home. The lender can declare the loan due and foreclose.

How much does a reverse mortgage cost in 2026?

Do heirs have to pay off a reverse mortgage?

Heirs must repay the loan balance or 95 % of appraised value, whichever is less, to keep the home. If they choose not to repay, they can sell the property or let the lender foreclose.

Is a reverse mortgage better than a home equity line of credit?

A reverse mortgage is better if you are 62+, want no monthly payment and plan to stay in the home long-term. A HELOC is better if you are younger, have steady income to cover payments and want a lower interest rate with less upfront cost.

A reverse mortgage can provide financial breathing room in retirement—but only if you qualify, understand the true costs and have a clear plan for the funds. Get independent counseling, shop multiple lenders and keep your heirs informed every step of the way.