What Is a Reverse Mortgage? 2026 Guide for Homeowners 62+

A reverse mortgage is a home loan that allows homeowners age 62 or older to convert a portion of their home equity into cash without selling their home or making monthly mortgage payments. Instead of paying the lender each month, the lender pays you — through a lump sum, monthly payments, or a line of credit. The loan is repaid when you sell the home, move out, or pass away.

How a Reverse Mortgage Works

In a traditional mortgage, you make monthly payments to a lender to build equity in your home. A reverse mortgage works in the opposite direction: your equity decreases over time as the lender pays you and interest accrues on the outstanding balance.

The loan becomes due and payable when:

You sell the home
You permanently move out (including moving to a nursing home for 12+ consecutive months)
You pass away
You fail to maintain the home, pay property taxes, or keep homeowners insurance

When the loan is due, you or your heirs can pay it off (often by selling the home) or walk away. If the home value exceeds the loan balance, you or your heirs keep the difference. If the balance exceeds the home’s value, the FHA insurance on HECM loans covers the difference — you will never owe more than the home is worth.

Types of Reverse Mortgages

HECM (Home Equity Conversion Mortgage)

HECMs are federally insured reverse mortgages backed by the FHA and regulated by HUD. They account for over 90% of all reverse mortgages. Key features:

Available through FHA-approved lenders
Loan limits up to $1,149,825 (2026 FHA limit)
Require HUD-approved counseling before closing
Non-recourse: you never owe more than the home’s value
Funds can be used for any purpose

Proprietary Reverse Mortgages

Private loans offered by lenders for high-value homes that exceed the HECM limit. No FHA insurance, but can access more equity on expensive properties.

Single-Purpose Reverse Mortgages

Offered by state agencies, local governments, and nonprofits for specific purposes such as home repairs or property taxes. Less common but typically lower-cost.

Reverse Mortgage Eligibility Requirements

Age: Youngest borrower (or non-borrowing spouse) must be at least 62
Home type: Primary residence only; must be a single-family home, HUD-approved condo, or 1-4 unit property where you occupy one unit
Home equity: Must have substantial equity — typically at least 50% or own the home outright
Financial assessment: Lender reviews your income and credit to ensure you can maintain property taxes, insurance, and upkeep
Counseling: Required HUD-approved counseling session before HECM application

How Much Can You Borrow?

The amount you can borrow (called the “principal limit”) depends on:

Age of the youngest borrower (older = more available)
Appraised home value (up to the FHA loan limit)
Current interest rates (lower rates = more available)
Any existing mortgage balance (must be paid off with reverse mortgage proceeds)

As a rough guideline, borrowers in their early 60s can typically access 40-50% of home value; borrowers in their 80s may access 60-70%. Use HUD’s HECM calculator for a specific estimate.

Ways to Receive Reverse Mortgage Funds

Lump sum: Receive all available funds at closing (fixed rate only; comes with a lower principal limit)
Monthly payments: Fixed monthly payments for a set term or for as long as you live in the home (tenure)
Line of credit: Draw funds as needed; unused line of credit grows over time (a significant benefit)
Combination: Mix of the above options

The line of credit option is particularly powerful because the available credit grows at the same rate as the loan interest — meaning unused funds grow over time, giving you more to draw on later.

Costs of a Reverse Mortgage

Reverse mortgages carry substantial upfront and ongoing costs:

Origination fee: Up to $6,000 for HECM loans
Upfront MIP (mortgage insurance premium): 2% of appraised home value (for FHA HECM)
Annual MIP: 0.5% of outstanding loan balance per year
Closing costs: Appraisal ($300-600), title, recording, and other fees — similar to a purchase mortgage
Interest: Accrues on the outstanding balance throughout the loan; not paid monthly but compounds over time

These costs make reverse mortgages expensive in the short term. They typically make the most sense for borrowers who plan to stay in their home long-term and need supplemental income.

Pros and Cons of Reverse Mortgages

Advantages

No monthly mortgage payments required
Tax-free loan proceeds (not considered income)
Non-recourse loan — cannot owe more than home is worth
Continue to own your home and live in it
Flexible payout options
Surviving spouse protections for eligible non-borrowing spouses

Disadvantages

High upfront costs eat into equity
Loan balance grows over time, reducing inheritance for heirs
Must maintain home, pay taxes, and keep insurance — failure triggers default
Limits flexibility to sell or refinance without paying off the loan
Complex product requiring careful consideration

Is a Reverse Mortgage Right for You?

A reverse mortgage makes sense in specific situations:

You plan to stay in your home long-term and need supplemental retirement income
You have substantial equity and limited liquid assets
Your Social Security and pension income does not fully cover expenses
You want to delay claiming Social Security to maximize your benefit
You need a financial safety net but do not want to sell your home

It is generally not the right choice if you want to leave the home to heirs, plan to move soon, or have other assets you have not yet considered (such as untapped retirement accounts).

Reverse Mortgage FAQ

Can I lose my home with a reverse mortgage?

Yes, if you fail to meet the loan obligations: living in the home as your primary residence, paying property taxes, maintaining homeowners insurance, and keeping the home in reasonable condition. Default on any of these requirements can trigger foreclosure.

What happens to my heirs after I die?

Your heirs have 30 days (extendable up to 12 months) after your death to pay off the loan or sell the home. If the home value exceeds the loan balance, heirs receive the difference. If the loan balance exceeds the home value, the FHA insurance covers the shortfall — heirs are not responsible for the difference.

Can a reverse mortgage affect Social Security or Medicare?

Reverse mortgage proceeds do not affect Social Security or Medicare benefits because they are loan proceeds, not income. However, if you receive Medicaid or Supplemental Security Income (SSI), large cash withdrawals could affect eligibility — consult an advisor before proceeding.