Reverse Mortgage Basics
What Is a Reverse Mortgage?
The plain-language basics: how it works,
who qualifies, and what it actually costs
Quick Answer
A reverse mortgage lets homeowners age 62 and older convert part of their home equity into tax-free cash. The most common type, called a HECM (Home Equity Conversion Mortgage), is insured by the FHA. You keep living in and owning your home. As long as you keep up with property taxes, homeowners insurance, and basic upkeep, no payment is due until you sell the home, move out permanently, or pass away.
Myth: “The bank owns your house.” Fact: you hold the title, not the lender — the same way you do with any other mortgage. More myths, busted, in Aren’t Reverse Mortgages a Scam?
If you’ve heard the term “reverse mortgage” and weren’t sure what it actually meant, you’re not alone. Most people first hear about it from an ad, a friend, or an article, and rarely get the full picture. This page walks through how these loans actually work today, using plain language, so you can decide for yourself whether it’s worth exploring further.
See it explained
Watch: How It Works in 90 Seconds
Prefer to read? The full breakdown continues right below.
How a Reverse Mortgage Works
With a traditional mortgage, you borrow money to buy a home and pay it back monthly. A reverse mortgage works the other way. You already own equity in your home, and the loan lets you access part of it as cash. Instead of you paying the lender each month, the loan balance grows over time.
In short: instead of you paying the bank, the bank pays you.
The loan becomes due and payable when what’s called a “maturity event” occurs — more on exactly what that means below. You still hold the title to your home. The lender doesn’t take ownership.
Traditional Mortgage
You Pay the Bank
Monthly payments go from you to the lender. Your loan balance shrinks over time.
Reverse Mortgage
The Bank Pays You
Cash flows from the lender to you. Your loan balance grows; you make no required monthly payments.
Who Qualifies
For a HECM, the standard requirements are:
- At least one homeowner on the title must be 62 or older
- The home must be your primary residence
- You need significant equity in the home
- You must complete a counseling session with a HUD-approved counselor before applying
- You’ll go through a financial assessment to confirm you can keep up with taxes, insurance, and home maintenance
If that assessment finds you might struggle to keep up with property taxes or insurance, HUD may require a Life Expectancy Set-Aside (LESA), a portion of your loan set aside specifically to pay those bills directly, similar to an escrow account, so they’re never missed. Some borrowers who aren’t required to have one can choose to set one up voluntarily as well.
Not Every Reverse Mortgage Is a HECM
Everything above describes a HECM, the most common type of reverse mortgage and the only one insured by the FHA. But it isn’t the only option. Many lenders also offer proprietary reverse mortgages (often called jumbo reverse mortgages) that aren’t backed by the FHA.
Why Proprietary Loans Matter in Marin & Sonoma Counties: In high-value North Bay markets where home values regularly exceed federal HECM caps, proprietary reverse mortgages offer loan amounts up to $4 million.
| Feature | HECM | Proprietary / Jumbo |
|---|---|---|
| Minimum Age | 62 | As young as 55 in many states* |
| FHA-Insured | Yes | No |
| Loan Limits | Based on a home value capped by HUD, not a fixed loan amount | Higher — designed for luxury and high-value homes |
| Mortgage Insurance | Required (funds FHA protections) | None — can mean lower upfront costs |
| Interest Rate | Typically lower | Typically slightly higher |
| Non-Recourse Protection | Yes, by law | Yes, on most products |
*Minimum ages vary by lender and state — some states require 60 or 62 even for proprietary programs.
As an independent mortgage broker with NEXA Lending, I compare options across multiple top-tier wholesale lenders—including Mutual of Omaha, Finance of America Reverse, and Longbridge—to match you with the exact HECM or proprietary program that fits your financial goals.
How You Can Receive the Money
Borrowers can typically choose:
A Lump Sum
A Line of Credit
Monthly Payments
A Combination
Some homeowners also use a version of this loan, called a HECM for Purchase, to buy a new home with no monthly mortgage payment, useful for downsizing or moving closer to family without paying all cash and tying up those funds, or taking on a traditional mortgage.
A different way to buy
Reverse for Purchase: Buy a New Home With Zero Mortgage Payments
Is your current home still working for you? A lot of homeowners would genuinely like to move—downsize, get closer to grandchildren, find a single-story layout—but assume they’re stuck. A Reverse for Purchase (R4P) loan, also called a HECM for Purchase (H4P), lets homeowners age 62+ buy a new primary residence with a mortgage that does not require monthly mortgage payments.
This is an FHA-insured program, created by Congress in 2009, and it works like two transactions rolled into one. You make a down payment—typically funded by the proceeds from selling your current home, savings, or another eligible source—and the reverse mortgage covers the rest of the purchase price. The seller gets paid in full at closing, exactly like any other home sale. From there, you own the new home outright, with no required monthly principal or interest payment for as long as you live there.
Like a traditional reverse mortgage, an R4P is non-recourse: you’ll never owe more than the home is worth, even if the loan balance eventually grows larger than the home’s value.
A Reverse for Purchase Can Help You:
- Downsize or relocate — move closer to grandchildren, into a single-story home, or somewhere that better fits this stage of life.
- Increase your purchasing power — since you’re not paying 100% cash, more of your funds can stay liquid, or go toward a home you couldn’t otherwise afford outright.
- Improve monthly cash flow — no required monthly mortgage payment, ever, as long as you live in the home.
- Preserve your future savings — keep more of your retirement funds invested and working for you, instead of tied up in a home purchase.
What You’ll Need to Qualify
- Age: At least one borrower must be 62 or older.
- Down payment: Typically 50–60% of the purchase price, depending on your age and current interest rates.
- Primary residence: You must move in within 60 days of closing and live there as your main home.
- Eligible property types: Single-family homes, FHA-approved condos, townhomes/PUDs, owner-occupied 2–4 unit properties, and manufactured homes meeting HUD guidelines.
- Ongoing obligations: Property taxes, homeowners insurance, HOA dues (if any), and home maintenance—same as with any mortgage.
An R4P is ideal for homeowners who want to downsize, right-size, or relocate—without taking on new monthly debt to do it.
What It Costs
HECM reverse mortgages have upfront and ongoing costs, similar to other FHA-insured loans:
- An initial mortgage insurance premium (currently 2% of the home’s value or the FHA lending limit, whichever is less)
- An annual mortgage insurance premium (currently 0.5% of the outstanding balance)
- Standard closing costs and possible servicing fees
These figures are set by HUD and can change, so it’s worth confirming current numbers before applying.
One important distinction: that mortgage insurance premium is specific to HECMs, since it’s what makes the loan federally insured. Proprietary reverse mortgages skip FHA insurance entirely, so they typically involve only standard closing costs and fees, similar to a traditional mortgage. That can make them cheaper upfront, even though the ongoing interest rate usually runs higher than a HECM’s.
See your own numbers
What Could You Qualify For?
Try the calculator below for a free, no-obligation estimate based on your home’s value and age. It only takes a couple of minutes.
What Happens When the Loan Ends
The loan becomes due and payable when a “maturity event” happens. That includes:
- The last surviving borrower (or eligible non-borrowing spouse) no longer lives in the home as their primary residence, including a permanent move, or a stay in a hospital or care facility longer than 12 consecutive months
- The home is sold or the title is transferred
- The borrower passes away
Falling behind on property taxes or homeowners insurance works a little differently. HUD requires the loan servicer to work with the homeowner first, often through a repayment plan, before the loan can be called due for that reason. Only if that process doesn’t resolve things does the loan move toward due-and-payable status.
Whatever the reason the loan becomes due, the homeowner or their estate has the right to sell the home themselves rather than have the lender foreclose, and is given time, typically around 6 months, with possible extensions, to do so.
Because HECMs are FHA-insured and non-recourse, you or your heirs will never owe more than the home is worth, even if the loan balance has grown larger than the home’s value.
Is a Reverse Mortgage Right for You?
That depends entirely on your situation. For some homeowners, it’s a good fit. For others, a HECM for Purchase, a HELOC, or another approach makes more sense. See “Alternatives to a Reverse Mortgage” for a fair look at other options.
There’s also a lot of outdated information circulating about reverse mortgages. See “Aren’t Reverse Mortgages a Scam?” for a closer look at the most common myths.
One thing worth knowing: qualifying for a reverse mortgage can get harder over time, not easier. Losing a spouse’s income, or taking on too much debt while trying to make ends meet without one, can both work against you later. Looking into your options early costs nothing — see why waiting can cost you options you don’t get back.
Common questions
FAQs
Yes, you keep the title and remain the sole owner of your home. You maintain ownership as long as you live in the home as your primary residence and fulfill standard requirements: paying property taxes, maintaining homeowners insurance, and keeping up with basic maintenance.
Yes, but only if you fail to meet standard homeownership obligations. Just like a traditional mortgage, you must stay current on property taxes, homeowners insurance, and required property maintenance to keep the loan in good standing.
No, HECMs and most proprietary reverse mortgages are non-recourse loans. Your heirs will never owe more than the home’s fair market value at the time of sale. If the loan balance exceeds the home’s value, FHA insurance covers the difference.
No, reverse mortgage proceeds are classified as loan advances rather than earned income. Because funds drawn are not considered taxable income, they generally do not impact your federal or California state income taxes (always consult a qualified tax advisor for your specific situation).
No — since the money is loan proceeds, not income, it doesn’t affect Social Security or Medicare eligibility. There’s one important exception: need-based programs like Medicaid and Supplemental Security Income (SSI) do look at your assets. Funds you draw and leave sitting in a bank account past the month you receive them could count against those specific program limits. If you rely on Medicaid or SSI, it’s worth talking to a benefits counselor or elder law attorney before deciding how to receive your funds.
A traditional HELOC requires mandatory monthly payments and can be frozen or canceled by the bank, whereas a HECM requires no monthly payments and cannot be canceled.
Additionally, the unused portion of a HECM line of credit grows independent of home value fluctuations. Unlike a HELOC—which a bank can reduce if property values drop—a HECM credit line increases your borrowing capacity over time.
There is no minimum credit score required to qualify for a HECM. However, borrowers undergo a financial assessment to verify sufficient income or cash reserves to comfortably cover ongoing property taxes, homeowners insurance, and upkeep.
The amount you can access depends on the youngest borrower’s age, current interest rates, and your home’s appraised value (up to the federal HECM limit or jumbo program guidelines). Generally, older borrowers with higher-value homes can access a larger percentage of their equity.
Yes. Marin and Sonoma County home values regularly exceed the maximum property value HUD will count toward a standard HECM, which is exactly why proprietary (jumbo) reverse mortgages exist. These loans, offered through national lenders like Mutual of Omaha, Finance of America Reverse, and Longbridge, offer loan amounts up to $4 million—well beyond what a standard HECM allows.
Yes, through a program called a HECM for Purchase (or Reverse for Purchase or Lifestyle Home Loan). This allows you to buy a new primary residence with roughly 50% to 60% down out of pocket, financing the rest with a reverse mortgage to eliminate monthly mortgage payments on the new home.
If you are absent from the home for longer than 12 consecutive months, the loan becomes due and payable. In this situation, most homeowners choose to sell the home, pay off the loan balance, and retain all remaining equity to fund their care.
The short version
Key Takeaways
- A reverse mortgage lets homeowners 62+ convert home equity into tax-free cash without monthly mortgage payments
- You keep ownership of your home
- HUD-approved counseling is required before applying
- Heirs never owe more than the home is worth
- HECMs aren’t the only option; proprietary reverse mortgages offer more lenient qualifying and higher loan amounts, usually at a higher rate
- It’s one option among several, not the only one
Curious what this could look like for your own home? I’m happy to walk through the numbers with you — no pressure, no obligation.
Keep exploring
Related Articles
Sources: HUD FHA HECM Program Information · CFPB: Reverse Mortgage Loans · CFPB: What Is a Reverse Mortgage? · HUD Mortgagee Letter 2023-23
Last Updated: August 2026