Key Takeaways

A reverse mortgage (HECM) lets homeowners 62 and older convert equity into cash with no required monthly principal and interest payment. You keep the title, and taxes, insurance and upkeep stay your responsibility.
How much you can draw depends on the age of the youngest borrower, the home’s value up to the 2026 FHA limit of $1,249,125, and rates. Any existing mortgage is paid off first.
The strongest cases: staying in the home, freeing up cash flow from an existing mortgage payment, and opening a standby line of credit whose unused portion grows over time.
The balance grows instead of shrinking, and upfront costs are real: mortgage insurance alone is 2% of the home’s value at closing.
It is the wrong tool if you plan to move soon, want to leave the home debt-free to heirs, or cannot comfortably cover taxes, insurance and maintenance.

Reverse mortgages have a reputation problem, most of it earned by how they were sold twenty years ago. The product today is federally insured, heavily regulated, and requires independent counseling before you can even apply. For the right homeowner it solves a problem nothing else solves: turning a paid-for house into spendable money without moving out. For the wrong one it is an expensive mistake. Here is how it works, who it fits, and when to walk away.

What is a reverse mortgage?

A reverse mortgage is a loan against your home that you do not have to repay while you live there. The most common type by far is the Home Equity Conversion Mortgage (HECM), insured by FHA and regulated by HUD.

The mechanics are the mirror image of a regular mortgage. Instead of making payments that shrink the balance, interest and insurance premiums are added to the balance each month, so what you owe grows and your remaining equity shrinks. A few features matter:

You keep the title. The lender does not own your home. You remain the owner, which also means you keep any property tax exemptions you qualify for.
No required monthly principal and interest payment. You still must pay property taxes, homeowners insurance, HOA dues and maintenance, and live in the home as your principal residence.
It is non-recourse. Neither you nor your heirs ever owe more than the home is worth when the loan is settled. FHA insurance covers the difference.
It comes due when the last borrower dies, sells, or moves out for more than 12 consecutive months. Heirs can repay the balance, sell the home, or buy it for 95% of appraised value if the balance exceeds it.

How much money can you actually get?

Three things drive it: the age of the youngest borrower (older means more), the home’s value up to the 2026 FHA limit of $1,249,125, and interest rates (lower rates mean more). The resulting percentage is called the principal limit factor.

An illustration on a $700,000 home, with a principal limit factor of 50% and an existing mortgage of $120,000:

Principal limit: $700,000 × 50% = $350,000
Upfront FHA mortgage insurance: $700,000 × 2% = $14,000
Other closing costs (origination, title, appraisal, counseling): roughly $6,000
Existing mortgage paid off at closing: $120,000
Left for you: $350,000 − $14,000 − $6,000 − $120,000 = $210,000

Note what else happened in that example: the required monthly payment on the $120,000 mortgage went away. For a retiree on fixed income, that cash flow is often worth more than the $210,000. Percentages and costs vary by borrower, so treat these as illustration, not a quote.

You can take the money as a lump sum, fixed monthly payments for life (tenure), payments for a set number of years (term), a line of credit, or a combination.

Who is a reverse mortgage good for?

This is the question that matters, and the honest answer is that it fits a narrow group very well.

1. Homeowners who want to stay in the house

If you are attached to the home, the neighbors and the doctor ten minutes away, the alternative to tapping equity is usually selling. A reverse mortgage lets you convert equity without moving, and without a payment that a fixed income has to absorb.

2. Retirees still carrying a mortgage payment

Paying off an existing mortgage with a HECM removes the single largest fixed obligation in most retirement budgets. Nothing else does that without either a lump sum of cash or a sale. If you are cash-tight but equity-rich, this is the clearest use of the product.

3. Retirees who want a standby line of credit

This is the strategic case that retirement researchers write about, and the one most people have never heard. Open a HECM line of credit and leave it unused: the available credit grows over time, at the same rate charged on the loan plus the annual insurance premium. If that growth rate averaged 7%, a $200,000 unused line would be about $200,000 × 1.07¹⁰ = $393,000 after ten years.

Two reasons that matters. First, the line cannot be frozen or reduced once it is established, unlike a HELOC, which a lender can cut when values fall. Second, it gives you somewhere to draw from when markets are down, so you are not selling investments at a loss to pay the bills. Draw from the house in bad years, from the portfolio in good ones.

4. People bridging to a larger Social Security benefit

Social Security benefits increase for each year you delay claiming, up to age 70. Some retirees use reverse mortgage draws as bridge income in their sixties so they can wait, locking in a larger inflation-adjusted benefit for life.

5. Homeowners funding care or aging-in-place changes

In-home care, a main-floor bathroom, a ramp, a walk-in shower. Paying for these out of home equity often costs far less than the alternative of moving to assisted living.

6. Buyers right-sizing with a HECM for Purchase

Less known: you can buy a home with a reverse mortgage, through the HECM for Purchase program I offer. You bring a large down payment, usually from the sale of the old house, and finance the rest with a HECM, with no required monthly principal and interest payment afterward. It lets a downsizing buyer keep more of their sale proceeds invested instead of sinking all of it into the new house. My post on buying a home in retirement covers the forward-mortgage version of this.

7. Divorce, buyouts, and debt with a deadline

A later-in-life divorce where one spouse keeps the house, or a HELOC whose draw period is ending and whose payment is about to jump, are both problems a HECM can solve when income no longer supports a conventional refinance.

Why use a reverse mortgage instead of selling or a HELOC?

	Reverse mortgage (HECM)	HELOC	Sell and downsize
Monthly payment required	None (taxes, insurance, upkeep still yours)	Yes, and it rises when the draw period ends	None, but you have new housing costs
Income qualification	Financial assessment, not a full income test	Full credit and income qualification	Not applicable
Can the lender cut it off?	No, once established	Yes, it can be frozen or reduced	Not applicable
Unused funds	Available credit grows over time	Stays flat	Cash in hand
Upfront cost	Higher (2% FHA insurance plus closing costs)	Lower	Sale costs and moving
Best when	You are 62+, staying put, and need cash flow	You have income and a shorter-term need	The house no longer fits your life

What does a reverse mortgage cost?

Upfront FHA mortgage insurance: 2% of the lesser of the home’s value or the FHA limit. On a $700,000 home, $14,000.
Annual FHA mortgage insurance: 0.5% of the outstanding balance, added to the balance.
Origination, title, appraisal and counseling fees, most of which can be financed into the loan.
Interest, which accrues on everything you have drawn, plus the insurance, and compounds.

Be clear-eyed about the arithmetic: a balance that grows while you are not paying on it means less equity later. That is the trade. It is worth it when the money buys you something you need now, such as staying in your home, avoiding forced portfolio sales, or eliminating a mortgage payment. It is not worth it if the money is going to sit in a savings account.

When is a reverse mortgage the wrong answer?

You may move within a few years. Upfront costs are front-loaded and there is not enough time to get value from them. Sell, or use a shorter-term option.
You want to leave the home to heirs free and clear. They can still keep it by repaying the balance, but they will need cash or a new loan to do it.
Taxes, insurance and upkeep are already a stretch. Falling behind on those can put the loan in default and, in the worst case, cost you the home. HUD requires a financial assessment, and lenders can require a set-aside from your proceeds to cover taxes and insurance.
A spouse under 62 would be left off the loan. Non-borrowing spouse rules can let them stay in the home, but they cannot draw more funds. Get this reviewed carefully before signing.
Someone is pushing you into it. A contractor who wants to finance your new roof with one, or anyone calling it “free money,” is a reason to stop and talk to an independent counselor.

What does it take to qualify?

Age 62 or older (all borrowers on title).
The home is your principal residence, and you own it outright or have a balance small enough that the loan can pay it off.
HUD-approved counseling. Independent counseling is required before you can apply. It is the single best protection built into the program: use it and ask hard questions.
Financial assessment. The lender reviews credit and residual income to confirm you can keep up with taxes, insurance and upkeep, and may require a set-aside for them.
No delinquent federal debt, and the property must meet FHA condition standards, with required repairs completed or funded.
Three business days to cancel after closing, no penalty.

Your state adds its own layer on top of those federal steps. Texas writes reverse mortgage rules into its constitution, including a 12-day notice before closing and foreclosure only by court order. California requires a state worksheet and a seven-day wait after counseling before a lender can take your application. Colorado adds a counseling attestation and protects the proceeds from counting as income for state benefits. Georgia adds nothing, and leaves your county exemptions to decide the tax bill you have to keep current.

Frequently Asked Questions

Do you still own your home with a reverse mortgage?

Yes. You keep the title. The lender records a lien, exactly as with any mortgage. You remain responsible for property taxes, homeowners insurance, HOA dues and maintenance, and you must live in the home as your principal residence.

Can you owe more than the house is worth?

No. A HECM is non-recourse. When the loan is settled, neither you nor your heirs owe more than the home’s value, and FHA insurance covers any shortfall. Heirs can also buy the home for 95% of its appraised value if the balance is higher.

How much can you borrow with a reverse mortgage?

It depends on the age of the youngest borrower, the home’s value up to the 2026 FHA limit of $1,249,125, and current rates. Older borrowers and lower rates produce a larger principal limit. Any existing mortgage is paid off from the proceeds first.

What happens to a reverse mortgage when you die?

The loan becomes due. Heirs generally have time to sell the home, repay the balance with cash or a new loan, or hand the property over. Anything left after the balance is repaid belongs to the estate.

Can you lose your home with a reverse mortgage?

Yes, if you stop paying property taxes or homeowners insurance, let the home fall into disrepair, or stop living in it as your principal residence. Those are the obligations that keep the loan in good standing.

Is reverse mortgage money taxable?

Loan proceeds are generally not taxable income, but a reverse mortgage can interact with need-based benefits such as Medicaid. Talk to a tax advisor and a benefits counselor about your situation.

Can you buy a house with a reverse mortgage?

Yes, through the HECM for Purchase program. You bring a substantial down payment, often from selling your previous home, and the HECM finances the rest with no required monthly principal and interest payment.

Official resources: CFPB on reverse mortgage eligibility and HUD’s HECM program page.

Reverse Mortgages: Who They’re Good For and Why