What is a Reverse Mortgage?
Everything you need to know about accessing home equity in retirement — without selling your home or making monthly mortgage payments.
Overview
A clear definition
A reverse mortgage is a home loan that allows homeowners aged 55+ or older to convert a portion of their home equity into cash — without selling the home or making required monthly mortgage payments.
With a traditional mortgage, you make payments to a lender and build equity over time. A reverse mortgage works in the opposite direction: the lender advances funds to you based on your equity. The loan balance typically grows as interest accrues, and repayment is generally deferred until you permanently leave the home, sell it, or pass away.
How It Works
A plain-English look at the mechanics
Accessing your equity
The lender calculates how much equity you can access — called the Principal Limit — based on your age (or the youngest borrower's age), the home's appraised value (up to applicable lending limits), and current interest rates. Generally, the older you are and the more equity you hold, the more funds may be available.
What happens to the balance
Unlike a traditional loan that shrinks with each payment, a reverse mortgage balance usually grows over time. Interest accrues monthly on the outstanding balance. This negative amortization is a normal feature of the product — not a surprise fee.
When repayment happens
The loan typically becomes due when a maturity event occurs. Heirs often have a window of time to repay — commonly by selling the home — and any remaining equity after repayment belongs to the estate.
Common maturity events
- The last surviving borrower passes away
- The borrower permanently moves out (for example, into a care facility for 12+ consecutive months)
- The borrower sells the home
- The borrower fails to pay property taxes, insurance, or maintain the home
Eligibility
Do you qualify?
Basic requirements typically include being 62 or older, living in the home as your primary residence, staying current on taxes and insurance, and maintaining the property. Ann can walk you through the details for your situation.
Loan Types
Choose the right product
HECM (Home Equity Conversion Mortgage)
The most common reverse mortgage, insured by the FHA. Offers flexible payout options and federally required counseling for borrower protection.
Proprietary Reverse Mortgage
Private lender products that may serve higher-value homes above FHA limits. Terms vary by lender and are not FHA-insured.
Single-Purpose Reverse Mortgage
Often offered by nonprofits or local agencies for a specific use, such as property taxes or home repairs. Availability is limited and program-specific.
Disbursement
How you can receive funds
Lump Sum
Receive funds in a single payment at closing.
Monthly Tenure
Receive equal monthly payments for as long as you live in the home.
Line of Credit
Draw funds as needed; unused credit may grow over time.
Combination
Mix options — for example, a partial lump sum with a growing line of credit.
Considerations
Pros, cons, and closing costs
Potential benefits
- No required monthly mortgage payments while you live in the home as your primary residence
- Funds are generally not taxed as income (consult your tax advisor)
- You keep the title and remain the homeowner
- Flexible ways to access equity based on your goals
Important trade-offs
- The loan balance typically grows as interest and fees accrue
- Available equity for heirs may be reduced over time
- You must stay current on taxes, insurance, and home maintenance
- Upfront costs can be higher than some other home equity products
Closing costs
Reverse mortgage closing costs may include an origination fee, appraisal, title work, and — for HECM loans — mortgage insurance premiums. Many costs can be financed into the loan so you do not need to bring them out of pocket. Ann will review estimated costs with you before you decide to proceed.
Counseling
The role of reverse mortgage counseling
Before closing a HECM, you complete a counseling session with an independent HUD-approved counselor. The goal is clarity: understanding how the loan works, your obligations, and whether it fits your long-term plans.
Counseling is a safeguard — not a sales step. Ann encourages every client to ask questions and move at a pace that feels right.
Next step
Looking for guidance tailored to you?
Every situation is unique. Reach out for a free, no-obligation conversation with Ann about whether a reverse mortgage makes sense for your goals.