A reverse mortgage lets you borrow against your home's value without selling it or making monthly payments

A reverse mortgage is a loan available to homeowners age 62 and older that converts part of your home's equity into cash. Unlike a traditional mortgage, you do not make monthly payments to the lender. Instead, the loan balance grows over time as interest and fees accumulate, and you repay it when you sell the home, move out permanently, or pass away.

The most common type is a Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). HECMs have rules about how much you can borrow, what the home must be worth, and what fees you will pay. Other reverse mortgages exist but are less common and often carry higher costs.

For lower-income homeowners, a reverse mortgage can provide cash for medical bills, home repairs, or daily expenses without forcing you to leave your home. But the costs are significant, and the loan reduces the equity your heirs will inherit. Understanding how it works and what it costs is essential before you commit.

Key Takeaways

  • You must be at least 62 years old, own your home outright or have a small mortgage balance, and live in the home as your primary residence to get a reverse mortgage.
  • The amount you can borrow depends on your age, the home's value, current interest rates, and the FHA's lending limit in your county — older homeowners and higher-value homes mean larger loans.
  • Reverse mortgages charge an upfront mortgage insurance premium (usually 2% of the home value), origination fees, appraisal costs, and ongoing interest, which add up quickly and reduce the cash you receive.
  • You remain responsible for property taxes, homeowners insurance, and home maintenance; failing to pay these can trigger loan repayment.
  • A HUD-approved counselor must review your situation before you sign, and this counseling is free and independent of the lender.

Who can get a reverse mortgage and what the lender will check

To get a reverse mortgage, you must meet basic requirements set by the FHA. You must be at least 62 years old, own the home outright or owe very little on an existing mortgage (which the reverse mortgage will pay off), and live in the home as your primary residence. The home must be a single-family house, a condo in an FHA-approved project, or a manufactured home built after 1976.

The lender will order an appraisal to determine the home's current value. They will also pull your credit report and check whether you owe property taxes or have unpaid liens against the home. If you have unpaid property taxes or homeowners association fees, the lender may require you to set aside money from the loan proceeds to cover them. This is called a Life Expectancy Set-Aside (LESA), and it reduces the cash you actually receive.

Income and credit score are not hard barriers the way they are for traditional mortgages, but they do matter. If your credit history shows you have not paid property taxes or homeowners insurance, the lender may deny you or require a set-aside. If you have very low income and cannot afford to keep paying property taxes and insurance after you take the loan, the lender may also be concerned about your ability to maintain the home.

How much money you can borrow and what affects the amount

The amount you can borrow depends on four main factors: your age, your home's appraised value, the current interest rate, and the FHA's lending limit for your county. The older you are, the more you can borrow, because the lender expects to recover the loan sooner. A 75-year-old can borrow more than a 65-year-old with the same home value.

The FHA sets a maximum loan amount for each county, which varies widely. In 2024, the limit ranges from around $498,000 in lower-cost areas to over $1 million in high-cost counties. If your home is worth $300,000 but the county limit is $498,000, your home value is the cap. If your home is worth $600,000 in a county with a $498,000 limit, you can only borrow against $498,000 of its value.

You have three ways to receive the money: a lump sum (all at once), a line of credit (draw as needed), or a combination of monthly payments plus a line of credit. A line of credit typically costs less in interest over time because you only pay interest on the money you actually draw. A lump sum is simpler but means you pay interest on the full amount when ready, even if you do not spend it right away.

The costs of a reverse mortgage: fees, insurance, and interest

Reverse mortgages are expensive. The upfront costs include an origination fee (typically 1% to 2% of the loan amount, capped at $6,000), an FHA mortgage insurance premium (2% of the home value upfront, plus 0.5% annually on the outstanding balance), an appraisal fee (usually $300 to $500), a title search and insurance fee, and recording fees. These costs are typically deducted from the loan proceeds, so you receive less cash than the loan amount suggests.

On top of upfront costs, you pay interest on the loan balance every month. The interest rate varies by lender and market conditions but is typically higher than a traditional mortgage rate. Because you are not making payments, the interest compounds — it gets added to the loan balance, and you pay interest on the interest. Over 10 years, this can nearly double what you originally borrowed.

A concrete example: if you borrow $200,000 at 7% interest with $4,000 in upfront fees, you receive about $196,000 in cash. After 10 years of no payments, the loan balance could be around $390,000 or more, depending on the exact terms. If your home is worth $400,000, you have little equity left to pass to heirs or to use if you need to move.

What happens to your home and what you must keep paying

You keep the title to your home and can stay there as long as you want, as long as you meet one critical requirement: you must continue to pay property taxes, homeowners insurance, and any homeowners association fees. You must also maintain the home in reasonable condition. If you fail to pay property taxes or insurance, the lender can declare the loan due and payable when ready, forcing you to repay the entire balance or sell the home.

For lower-income homeowners, this is a real risk. If you are already struggling to pay property taxes or insurance, a reverse mortgage will not solve that problem — it will create a new one. The lender may require you to set aside money from the loan to cover these costs for a period of time, but that set-aside eventually runs out.

When you pass away, your heirs have the option to repay the loan and keep the home, or to sell the home and use the proceeds to repay the lender. If the home is worth less than the loan balance (which can happen in a declining market), the FHA insurance covers the difference, and your heirs do not owe the shortfall. However, if the home is worth more, your heirs receive the difference after the loan is repaid.

Why you must meet with a HUD-approved counselor before signing

Federal law requires that you receive counseling from a HUD-approved reverse mortgage counselor before you can close a reverse mortgage. This counselor is independent of the lender and is paid by HUD, not by the lender, so they have no financial incentive to push you toward the loan. The counseling is free and typically takes 60 to 90 minutes, either in person or by phone.

The counselor will review your financial situation, explain how the loan works, discuss alternatives (such as a home equity line of credit or a traditional loan), and make sure you understand the costs and risks. They will also discuss what happens if you cannot pay property taxes or insurance, and whether the loan makes sense for your goals. If the counselor thinks the loan is not right for you, they will tell you directly.

To find a HUD-approved counselor, visit the HUD website or call 1-800-569-4287. You can also search by county or ZIP code. Do not use a counselor recommended by the lender, even if they say the counselor is independent — find one yourself. The counselor will provide you with a certificate of completion, which you must bring to closing.

Alternatives to a reverse mortgage for lower-income homeowners

Before you commit to a reverse mortgage, explore other options. A home equity line of credit (HELOC) or a home equity loan may offer lower interest rates and lower upfront costs, but they require monthly payments, which may not be feasible if you are on a fixed income. A traditional cash-out refinance replaces your existing mortgage with a larger one and gives you the difference in cash, but again, you must may have access to based on income and credit, and you must make monthly payments.

If you own your home outright and need cash for a specific purpose (like a medical bill or home repair), a personal loan or a loan from a family member might be cheaper than a reverse mortgage. If you need help paying property taxes or insurance, contact your local Area Agency on Aging or your county assessor's office — many states offer property tax deferral or exemption programs for seniors with low income.

If you are struggling with housing costs and considering a reverse mortgage mainly to stay in your home, explore whether you are may be able to access for property tax relief, homeowners insurance information, or home repair grants. These programs vary by state and county, but they exist in many places and do not require you to borrow against your home.

Frequently Asked Questions

Can I get a reverse mortgage if I still owe money on my current mortgage?

Yes, but the reverse mortgage must pay off the existing balance first. If you owe $50,000 on a traditional mortgage and you take out a $200,000 reverse mortgage, the lender will use $50,000 to pay off the old loan, and you will receive about $150,000 (minus fees). You must have enough equity in the home for this to work.

What happens if I move out of the home or go into a nursing home?

If you move out permanently or enter a nursing home for more than 12 months, the reverse mortgage becomes due. You or your heirs will need to repay the loan, typically by selling the home. If you are only temporarily away (for example, a hospital stay), the loan does not become due as long as you intend to return.

Can the lender take my home if I cannot pay property taxes?

The lender cannot take your home directly, but they can declare the loan due and payable if you fail to pay property taxes or homeowners insurance. You would then have to repay the entire loan balance or sell the home. This is why it is critical to make sure you can afford these costs before you take out a reverse mortgage.

Will a reverse mortgage affect my Social Security or Medicare benefits?

A reverse mortgage does not affect Social Security, but it may affect Supplemental Security Income (SSI) or Medicaid if you receive those benefits. The cash you receive counts as income or assets, which could reduce your benefits. Speak with a benefits counselor before you take out a reverse mortgage if you receive SSI or Medicaid.

How long does it take to close a reverse mortgage?

From process to closing typically takes 30 to 45 days, depending on how quickly you provide documents and complete the required counseling. The appraisal and title search add time. There is no rush — take the time you need to understand the loan and make sure it is right for you.