Reverse Mortgages Explained: Pros, Cons, and How They Work

Key takeaways

• A reverse mortgage (HECM) lets homeowners 62 and older convert home equity into cash without selling the home or paying a monthly mortgage payment, as long as they keep up with taxes, insurance, and upkeep.
• Non-recourse protection means neither you nor your heirs will ever owe more than the home's value at the time of repayment.
• A HELOC or home equity loan usually costs less if you can handle a monthly payment and plan to stay for many more years. A reverse mortgage tends to fit better when eliminating a monthly payment matters more than preserving maximum equity for heirs.

You've spent decades paying down your mortgage, and the house is worth far more today than what you paid for it. Retirement is close, or you're already living it, and the money you saved isn't stretching quite the way you'd planned. You've likely heard the term ‘reverse mortgage’ before, maybe from a commercial, maybe from a friend who used one, and you're not sure if it's a legitimate financial tool or something to avoid. It's neither extreme.

A reverse mortgage, more specifically a Home Equity Conversion Mortgage (HECM)⁽¹⁾, is a federally insured loan that lets homeowners 62 and older convert part of their home equity into cash without selling the house or taking on a monthly payment.

This guide walks through how the loan actually works, what it costs, who qualifies, how and when it gets repaid, and how it compares to a HELOC or a home equity loan. The goal is to give you enough clarity to have an informed conversation with a HUD-approved counselor, which is a required step before you can close on one anyway.

Home equity among older Americans has never been higher.

Homeowners 62 and older held a record $14.92 trillion in housing wealth in the first quarter of 2026, up from the prior quarter as home values rose faster than the mortgage debt seniors carry⁽²⁾.

The equity in your house is out of reach unless you sell, refinance, or borrow against it. A reverse mortgage is one of three main ways to borrow against it. A HELOC and a home equity loan are the other two, and each works differently enough that the right choice depends heavily on your age, how long you plan to stay in the home, and whether a monthly payment fits your budget.

The federal government insures nearly all reverse mortgages through the Federal Housing Administration's HECM program, and for 2026 the maximum home value the program will lend against rose to $1,249,125⁽³⁾. If your home is worth more than that, the extra value doesn't factor into your loan amount unless you go with a private, non-FHA-insured jumbo reverse mortgage instead.

That's the landscape, here's how the loan itself works.

How a reverse mortgage actually works

A HECM lets you convert a portion of your home equity into loan proceeds while you continue to live in the home and hold the title. Unlike a traditional forward mortgage, where you borrow a lump sum and pay it down every month, a reverse mortgage works backward. The lender pays you, and instead of shrinking the loan balance grows over time⁽⁴⁾.

You choose how to receive the money with options including a single lump sum, equal monthly payments for as long as you live in the home, monthly payments for a set number of years, a line of credit you draw from as needed, or a combination of a line of credit and monthly payments. The line of credit option has a feature worth planning around. The unused portion grows over time, and unlike a HELOC, the lender cannot freeze or reduce it once it's established.

During the first 12 months after closing, HUD limits how much of your available proceeds you can access. You can generally draw up to 60 percent of your principal limit in year one, or the amount needed to pay off an existing mortgage plus 10 percent, whichever is greater⁽⁵⁾.

After the first year, you can access the rest of your available funds as needed.

How much you qualify for depends on four factors including your age (or the age of the younger spouse if you're borrowing jointly), your home's appraised value up to the $1,249,125 federal limit, current interest rates, and the type of HECM you choose. As of mid-2026, adjustable-rate HECMs carried rates roughly between 5.9 and 6.6 percent, while fixed-rate HECMs ran higher, generally between 7.6 and 7.9%⁽⁶⁾. Older borrowers with more expensive homes and lower interest rates typically qualify for a larger share of their equity, because the lender's risk of the loan balance eventually exceeding the home's value is lower.

Who qualifies for a reverse mortgage

HECM eligibility comes down to a short list of requirements. You need to be at least 62 years old, though if you're borrowing with a spouse, HUD allows the loan to remain in place even if the younger spouse hasn't turned 62 yet, as long as they're listed as an eligible non-borrowing spouse. The home has to be your primary residence, meaning you live there most of the year, and it needs to be a HUD-eligible property type, which includes single-family homes, two-to-four-unit properties, HUD-approved condominiums, and manufactured homes built after June 1976⁽⁷⁾. Co-ops don't qualify.

You'll also need enough equity to make the loan work, generally somewhere around 50 percent or more, though the exact figure depends on your age and the loan's terms. If you still owe money on a traditional mortgage, the reverse mortgage proceeds typically pay that off first, and whatever remains is what's actually available to you.

Every HECM borrower is required to complete a counseling session with a HUD-approved counselor before applying, regardless of financial background or how many times they've refinanced a home before. It's not a formality. Counselors are trained to walk through the full cost of the loan, alternatives you might not have considered, and how a reverse mortgage would affect your specific situation, including any government benefits you receive.

If you're 55 to 61 and don't meet the HECM age minimum, some private lenders offer proprietary reverse mortgages that aren't FHA-insured. These typically carry higher interest rates and don't come with the same non-recourse protections, so they deserve extra scrutiny before you sign anything.

What a reverse mortgage actually costs

The upfront costs of a reverse mortgage run higher than most people expect, and they're the main reason a HECM isn't a good fit for someone who plans to move within a few years. Four cost categories make up the total.

Initial mortgage insurance premium. Every HECM borrower pays a one-time premium of 2 percent of the lesser of the home's appraised value or the $1,249,125 federal limit. On a $500,000 home, that's $10,000, typically financed into the loan rather than paid in cash.

Annual mortgage insurance premium. On top of the upfront charge, the loan accrues an ongoing premium of 0.5 percent of the outstanding balance every year, which grows as the loan balance grows⁽⁴⁾. This premium is what funds the program's non-recourse guarantee, covered in the next section.

Origination fee. Lenders can charge up to $6,000, calculated as 2 percent of the first $200,000 of home value plus 1 percent of anything above that, with a $2,500 floor⁽⁸⁾. Many lenders charge less than the cap, and some waive it entirely, so it's worth comparing offers.

Closing costs. Appraisal, title, recording fees, and the required counseling session, usually around $125, round out the total.

Here's roughly what those costs add up to at different home values.

*Includes third-party closing costs and the counseling fee. Most of this amount is financed into the loan rather than paid out of pocket.

Because nearly everything gets financed into the loan, the cash needed at closing is usually just the counseling fee. But the total cost still reduces the equity available to you and grows the balance you or your heirs will eventually need to settle.

How and when the loan gets repaid

A HECM becomes due and payable when the last surviving borrower, or eligible non-borrowing spouse, dies, sells the home, or no longer uses it as a primary residence, including an absence of more than 12 consecutive months due to illness⁽⁵⁾. It can also come due if you stop paying property taxes or homeowners insurance, or fail to keep the home in reasonable condition, since those are ongoing obligations built into every HECM contract.

One point causes more confusion than any other. The lender does not take ownership of the home. A reverse mortgage places a lien against the property, the same way a traditional mortgage does, but title stays in your name for as long as you live there⁽⁴⁾.

What changes is what happens once the loan comes due.

At that point, the home is typically sold, and the proceeds go toward repaying the loan balance, including all the accrued interest and mortgage insurance. Whatever is left over belongs to you or your estate. And because a HECM is a non-recourse loan, neither you nor your heirs will ever owe more than the loan balance or the home's value at the time of repayment, whichever is less⁽⁴⁾. If the home's value has dropped below what's owed, the FHA insurance fund, funded by the mortgage insurance premiums described above, absorbs the difference. Heirs aren't personally responsible for a shortfall.

Heirs also have options rather than an automatic loss of the home. They can sell the property and keep any remaining equity, refinance the reverse mortgage into a traditional loan and keep the home, or pay off the balance in full and keep it outright⁽⁹⁾. What they can't do is let the loan sit unresolved indefinitely. HUD gives heirs an initial six months to decide, with extensions available in some circumstances.

Reverse mortgage vs. HELOC vs. home equity loan

All three products let you borrow against home equity, but they work in fundamentally different ways.

A home equity line of credit, or HELOC, is a revolving credit line, similar to a credit card, secured by your home. You draw what you need during a set draw period, typically 10 years, then repay principal and interest during a repayment period that follows. HELOC rates are usually variable and tied to the prime rate, which puts most HELOC rates around 7.5 to 8.5% in early 2026⁽¹⁰⁾.

You'll need to qualify based on income and debt-to-income ratio, and monthly payments are required throughout.

A home equity loan works more like a traditional mortgage. You receive a lump sum upfront, at a fixed rate, and repay it in equal monthly installments over a set term. It's predictable, but it also requires income qualification and a monthly payment from day one.

A reverse mortgage requires no monthly payment and no minimum credit score. Lenders do a financial assessment to confirm you can cover taxes and insurance, rather than a traditional debt-to-income calculation. In exchange, it comes with higher upfront costs, mandatory counseling, and a loan balance that grows rather than shrinks.

None of these is universally better. A HELOC or home equity loan usually costs less over time if you can comfortably handle a monthly payment and plan to stay in the home for many more years. A reverse mortgage tends to make more sense for someone who wants to eliminate a mortgage payment altogether, plans to stay put long term, and has enough other assets or income to keep up with taxes, insurance, and maintenance.

See our HELOC vs. home equity loan comparison guide here.

Weighing the real pros and real cons

The benefits of a reverse mortgage are specific, not abstract. It eliminates a monthly mortgage payment, which frees up cash flow that would otherwise go toward principal and interest every month. The line of credit option grows over time and can't be reduced or frozen by the lender, giving you a reserve that increases in value the longer you leave it untouched. And the non-recourse protection means you'll never be forced out for owing more than the home is worth, and neither will your heirs.

The costs are just as specific. Upfront fees run higher than a HELOC or home equity loan, often 4 to 6% of the home's value. The loan balance grows every month, which reduces the equity available to you or your heirs later. You still have to pay property taxes, homeowners insurance, and maintenance costs, and falling behind on any of them can trigger repayment. And if you're receiving Medicaid or Supplemental Security Income, taking a lump sum requires careful planning, covered below.

Common mistakes and misconceptions

Believing the bank will own your house

This is the most persistent myth about reverse mortgages, and it's false. As explained above, a HECM places a lien against your home, not a transfer of ownership⁽⁴⁾. You keep the title, you keep the right to live there, and you keep any equity that remains when the loan is eventually repaid.

Assuming heirs automatically inherit the debt

Because the loan is non-recourse, your heirs will never owe more than the home is worth when the loan comes due, even if the balance has grown larger than the home's value⁽⁴⁾. They also have real choices, including selling the home, refinancing to keep it, or paying off the balance outright⁽⁹⁾.

Not realizing it can affect Medicaid or SSI

A reverse mortgage doesn't affect Social Security retirement benefits or Medicare, because loan proceeds are treated as loan proceeds, not income. Medicaid and Supplemental Security Income are different. Both are needs-based programs, and if you take a lump sum and don't spend it within the month you receive it, the leftover amount can count against Medicaid's and SSI's resource limits, generally $2,000 for an individual⁽¹¹⁾. If you or a spouse relies on either program, talk to a benefits counselor before choosing a payout option.

Compare your options before you decide

A reverse mortgage is one tool among several, and the right one depends on your age, how long you plan to stay in your home, and what you need the money for. Before you move forward with any option, a HUD-approved counseling session is required, and it's worth treating as a real resource to learn about this type of financial product rather than a formality.

About the Author

The Greensprout editorial team researches and writes on financial topics that matter most, drawing on data from federal agencies, major financial institutions, and independent research firms.

Disclaimer

Reverse mortgage eligibility, rates, and terms are determined individually by each FHA-approved lender based on your age, home equity, and financial situation. Information presented here does not guarantee approval for any financial product. Greensprout's editorial team writes on behalf of the reader. Our goal is to provide clear, useful information to help you make better financial decisions. Our editorial content is not influenced by advertiser relationships. Greensprout is an independent, advertising-supported publisher and comparison resource. We may earn compensation when you click on links to products from our partners. This does not affect our editorial standards or recommendations.

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