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Reverse Mortgage Basics
A plain-English introduction to how reverse mortgages work — what they are, who they are for, and what to consider.
What Is a Reverse Mortgage?
A reverse mortgage is a type of home loan available to homeowners age 62 or older (or in some proprietary programs, 55 or older) that allows them to convert a portion of their home equity into funds.
Unlike a traditional mortgage — where you make payments to the lender each month — with a reverse mortgage, the lender pays you. The loan balance grows over time as interest and fees accrue, and the loan becomes due when you sell the home, permanently move out, or pass away.
The most common type in the United States is the HECM (Home Equity Conversion Mortgage), which is federally insured by the FHA under the supervision of HUD.
Who Is a Reverse Mortgage For?
A reverse mortgage may be worth exploring if you are a qualifying homeowner (generally age 62 or older for HECM programs, or as young as 55 for some proprietary programs) who:
- Wants to supplement retirement income without selling your home
- Needs to eliminate existing monthly mortgage payments
- Wants a financial safety net — such as a growing line of credit — for future needs
- Is planning to purchase a new primary residence without a monthly mortgage payment
- Wants to age in place and needs funds for home modifications or care costs
A reverse mortgage is not the right solution for everyone. Speaking with a HUD-approved counselor and a trusted financial advisor is strongly encouraged before making any decision.
The Loan Lifecycle
While you live in the home: No monthly mortgage payment is required. The loan balance grows as interest accrues. You remain responsible for property taxes, homeowner’s insurance, and upkeep.
When the loan becomes due: The loan is repaid when you permanently move out, sell the home, or pass away. Your heirs can repay the loan and keep the home, or sell the home to settle the balance.
Non-recourse protection: On HECM loans, you (or your heirs) can never owe more than the home’s appraised value at the time the loan is repaid.
Costs to Be Aware Of
Reverse mortgages have costs, just like any other loan. These may include:
- Origination fee — charged by the lender
- FHA Mortgage Insurance Premium (MIP) — for HECM loans
- Closing costs — appraisal, title, recording, etc.
- Servicing fees — may be charged over the life of the loan
- Interest — accrues on the outstanding loan balance
Many of these costs can be financed into the loan, meaning you may not need to pay them out of pocket at closing — but they do reduce the net equity available.
Common Misconceptions
✗ Myth: “The bank owns your home”
✓ Fact: You retain title and ownership of your home as long as you meet loan obligations — paying property taxes, insurance, and maintaining the property.
✗ Myth: “Your heirs will be stuck with debt”
✓ Fact: A reverse mortgage is a non-recourse loan. If the loan balance exceeds the home's value when it becomes due, neither you nor your heirs are responsible for the difference — FHA insurance covers it on HECM loans.
✗ Myth: “You must own your home free and clear”
✓ Fact: You can have an existing mortgage. However, any outstanding balance must be paid off at or before closing — often using proceeds from the reverse mortgage.
✗ Myth: “Reverse mortgage income affects Social Security or Medicare”
✓ Fact: Reverse mortgage proceeds are loan proceeds, not income. They generally do not affect Social Security or Medicare benefits. However, needs-based benefits like Medicaid may be affected — consult an advisor.
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