A reverse mortgage lets homeowners aged 62+ convert home equity into cash without selling. It can be a valuable retirement tool — but it comes with significant costs and risks you need to understand.
Table of Contents
What Is a Reverse Mortgage?
A reverse mortgage is the opposite of a traditional mortgage. Instead of making payments to a lender, the lender pays you — using your home equity as collateral.
| Feature | Traditional Mortgage | Reverse Mortgage |
|---|---|---|
| Who pays whom | You pay the lender | Lender pays you |
| Monthly payments | Required | None required |
| Equity over time | Increases | Decreases |
| When loan is repaid | Monthly over loan term | When you sell, move, or die |
| Age requirement | None | 62+ |
| Income requirement | Yes (DTI ratios) | Minimal (financial assessment) |
Types of Reverse Mortgages
| Type | Description | Loan Limit | Best For |
|---|---|---|---|
| HECM (Home Equity Conversion Mortgage) | FHA-insured, most common | $1,209,750 (2026) | Most homeowners |
| Proprietary (jumbo) | Private lender, higher limits | $2M-$4M+ | High-value homes |
| Single-purpose | State/local government | Varies | Specific needs (repairs, taxes) |
95% of reverse mortgages are HECMs, backed by the FHA.
How Much Can You Borrow?
The amount depends on age, home value, and interest rates:
| Age | % of Home Value Available | On $400K Home | On $600K Home |
|---|---|---|---|
| 62 | 40-45% | $160K-$180K | $240K-$270K |
| 65 | 43-48% | $172K-$192K | $258K-$288K |
| 70 | 48-53% | $192K-$212K | $288K-$318K |
| 75 | 53-58% | $212K-$232K | $318K-$348K |
| 80 | 58-63% | $232K-$252K | $348K-$378K |
| 85+ | 63-68% | $252K-$272K | $378K-$408K |
Older borrowers get a higher percentage because the loan has fewer years to accrue interest.
Payment Options
| Option | How It Works | Best For |
|---|---|---|
| Lump sum | One-time payment (fixed rate only) | Paying off existing mortgage, large expense |
| Monthly tenure | Equal payments for life | Supplementing retirement income |
| Monthly term | Equal payments for set period | Bridging to Social Security or pension |
| Line of credit | Draw as needed, unused grows | Emergency access, flexible needs |
| Combination | Mix of above options | Customized approach |
The line of credit option is often the most flexible — the unused portion grows at the loan rate, giving you more borrowing power over time.
Costs of a Reverse Mortgage
| Cost | Amount | When Paid |
|---|---|---|
| Origination fee | $2,500-$6,000 | At closing (can be financed) |
| FHA mortgage insurance premium (upfront) | 2% of home value | At closing |
| FHA annual MIP | 0.5% of loan balance | Ongoing |
| Closing costs (appraisal, title, etc.) | $3,000-$5,000 | At closing |
| Interest rate (variable) | 7-8.5% | Accrues on balance |
| Interest rate (fixed, lump sum) | 6.5-8% | Accrues on balance |
| Servicing fee | $30-$35/month | Ongoing |
| Total upfront costs on $400K home | $13,500-$19,000 | — |
How Interest Compounds
| Year | Starting Balance ($200K) | Interest Accrued (7.5%) | Ending Balance |
|---|---|---|---|
| 1 | $200,000 | $15,000 | $215,000 |
| 5 | $200,000 | — | $287,000 |
| 10 | $200,000 | — | $411,000 |
| 15 | $200,000 | — | $590,000 |
| 20 | $200,000 | — | $847,000 |
A $200K reverse mortgage balance grows to $847K in 20 years at 7.5%. This is equity your heirs won’t receive.
Eligibility Requirements
| Requirement | Details |
|---|---|
| Age | 62+ (all borrowers on title) |
| Home type | Primary residence — SFH, 2-4 unit, condo (FHA-approved), manufactured home |
| Equity | Significant equity (typically 50%+) |
| Financial assessment | Must show ability to pay taxes, insurance, maintenance |
| Counseling | HUD-approved counseling session required |
| Existing mortgage | Must be paid off with reverse mortgage proceeds |
Pros and Cons
| Pros | Cons |
|---|---|
| No monthly mortgage payments | High upfront costs (2-5% of home value) |
| Stay in your home | Interest compounds — equity shrinks over time |
| Non-recourse (can’t owe more than home value) | Reduces inheritance for heirs |
| Multiple payment options | Must maintain home, pay taxes/insurance |
| Line of credit grows over time | Complex product, potential for misunderstanding |
| Tax-free proceeds | May affect Medicaid eligibility |
Alternatives to a Reverse Mortgage
| Alternative | Monthly Cost | Access to Cash | Keep Full Equity? |
|---|---|---|---|
| HELOC | Interest-only payments | Draw as needed | Partially |
| Home equity loan | Fixed monthly payments | Lump sum | Partially |
| Cash-out refinance | New mortgage payment | Lump sum | Partially |
| Sell and downsize | None | Large lump sum | Exchange for new equity |
| Rent a room | Income, not cost | Monthly income | ✅ |
| Property tax deferral | None (varies by state) | Tax savings only | ✅ |
When a Reverse Mortgage Makes Sense
A reverse mortgage may be appropriate if you:
- Are 70+ with significant home equity and limited other assets
- Plan to stay in your home for 10+ years
- Need supplemental income or a financial safety net
- Don’t have heirs dependent on inheriting the home
- Have already maximized other retirement income sources
Key Takeaways
- A reverse mortgage lets homeowners 62+ borrow against home equity with no monthly payments
- You can access 40-68% of your home value depending on age — older borrowers qualify for more
- Upfront costs run $13,500-$19,000 on a $400K home including FHA insurance
- Interest compounds rapidly — a $200K balance becomes $847K in 20 years at 7.5%
- The line of credit option is most flexible and the unused portion grows over time
- Consider alternatives first — HELOCs, downsizing, or home equity loans may be cheaper
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