A reverse mortgage allows homeowners aged 62 and older to convert a portion of their home equity into tax-free loan proceeds without selling the home or making monthly payments. It is a financial product built specifically for retirement — one that can provide meaningful cash flow for homeowners who are equity-rich but cash-poor. But reverse mortgages are also complex, and the wrong decision can affect your heirs and your long-term housing security.
How a Reverse Mortgage Works
In a traditional mortgage, you borrow money to buy a home and make monthly payments to the lender. The loan balance decreases over time as you pay it down. A reverse mortgage works in the opposite direction: the lender makes payments to you (or provides a line of credit), the loan balance increases over time, and repayment comes when the last borrower leaves the home permanently — through sale, moving out, or death.
Interest accrues on the outstanding balance. The loan is repaid from the home’s sale proceeds. If the home sells for more than the loan balance, the excess goes to you or your heirs. If it sells for less, the FHA insurance on most reverse mortgages covers the difference — neither you nor your heirs owe more than the home’s value.
Types of Reverse Mortgages
Home Equity Conversion Mortgage (HECM)
The HECM is the most common type, backed by the FHA and federally regulated. In 2026, the maximum HECM lending limit is $1,209,750. HECMs require HUD-approved counseling before closing and are available through FHA-approved lenders.
Proprietary Reverse Mortgage
Private reverse mortgages are not government-backed and are designed for higher-value homes that exceed the HECM lending limit. They typically offer higher loan amounts but with less consumer protection.
Single-Purpose Reverse Mortgage
Offered by some state and local governments for specific uses (home repairs, property taxes). These have the lowest costs but the most restrictions.
How Much Can You Borrow?
The amount you can borrow depends on your age, the home’s appraised value, current interest rates, and the type of reverse mortgage. Generally, older borrowers with more home equity and lower interest rates qualify for larger amounts. A 75-year-old with a $500,000 home might qualify for $250,000 to $300,000 or more under a HECM in 2026.
How Proceeds Are Distributed
You can receive funds in several ways:
- Lump sum — one fixed amount at closing (only available with fixed-rate HECMs)
- Monthly payments — a set amount each month for life or for a fixed term
- Line of credit — draw funds as needed; unused portions grow over time
- Combination — any combination of the above
The line of credit option is often the most strategically flexible, particularly as a financial backstop for sequence-of-returns risk in early retirement.
Costs and Fees
Reverse mortgages are not free. Common costs include an origination fee (up to $6,000 for HECMs), an upfront FHA mortgage insurance premium (2% of the appraised value), ongoing annual mortgage insurance (0.5% of the outstanding balance), appraisal fees, and closing costs. These are typically financed into the loan, meaning you do not pay out of pocket, but they do reduce your net equity.
Requirements and Responsibilities
To qualify for a HECM, you must be 62 or older, own the home outright or have significant equity, live in the home as your primary residence, and remain current on property taxes, homeowners insurance, and basic maintenance. Failure to maintain these obligations can trigger a default and foreclosure even on a reverse mortgage.
Is a Reverse Mortgage Right for You?
A reverse mortgage may be worth considering if you plan to stay in your home long-term, need supplemental retirement income, want to defer Social Security by drawing down home equity instead of your investment portfolio, or face rising property tax or healthcare costs. It is generally not appropriate if you plan to move within a few years, want to leave the home’s full value to heirs, or have adequate retirement income from other sources.
The Bottom Line
A reverse mortgage is a legitimate retirement planning tool that can provide meaningful liquidity for equity-rich homeowners. It is not a predatory product when used appropriately, but it does require careful planning. Consult a HUD-approved housing counselor and a fee-only financial planner before proceeding — the decision is irreversible in practice and has lasting implications for your estate.
For more on leveraging home equity for shorter-term needs, see our guide to what a home equity loan is. For other home financing tools, see what a HELOC is.