Reverse Mortgage

With an ordinary Mortgage you pay the lender and the balance falls. A reverse mortgage runs the other way: the lender pays you, interest and fees are added each month, and the balance rises while your home equity falls. You keep title to the home, and nothing is due until the loan matures.

How much you can borrow, called the principal limit, rises with the youngest borrower’s age and the home’s value, which a HECM counts only up to $1,249,125 for 2026, and falls as interest rates rise. Any existing mortgage is paid off first, often from the loan itself.

Most reverse mortgages are HECMs, insured by the Federal Housing Administration and open only to homeowners 62 and older. Some lenders offer proprietary reverse mortgages, which aren’t federally insured and are typically designed for higher-value homes. Some state and local governments and nonprofits offer single-purpose loans that can pay only for a named purpose, such as repairs or property taxes, often for owners with low or moderate incomes.

A HECM also has these requirements:

With an adjustable rate you can take a line of credit, equal monthly payments for a set term or for as long as you live in the home (tenure), or a mix of payments and a line. A fixed rate comes as a single lump sum at closing, usually for less money in total. HUD also caps what you can take at closing or in the first 12 months, generally at 60% of the principal limit unless more is needed to pay off an existing mortgage and other required costs.

The line of credit has an unusual feature: its unused part grows. HUD rules raise the principal limit each month by one-twelfth of the loan’s interest rate plus the annual mortgage insurance rate, and the unused line grows at that pace. A line opened early and left alone can be much larger a decade later.

Reverse mortgages are typically more expensive than other home loans, such as a HELOC. Upfront, a HECM charges an origination fee of $6,000 or less, third-party closing costs such as the appraisal and title work, and an initial mortgage insurance premium paid to the Federal Housing Administration. Financing them from the loan avoids cash at closing but leaves less to use.

Ongoing charges are added to the balance monthly: interest, an annual mortgage insurance premium of 0.5% of the outstanding balance, and any servicing fee. Each month’s interest is charged on earlier interest and fees, so the balance compounds. The CFPB’s advice for keeping these costs down is to borrow only what you need. Ask for the Total Annual Loan Cost (TALC) rates, which project the average yearly cost over different time spans.

The mortgage insurance buys two promises: neither you nor your heirs will owe more than the home is worth, and your advances continue even if the lender fails. It does not protect your equity.

A HECM comes due when the last surviving borrower dies, sells the home, or stops living there as a principal residence, including an absence of more than 12 consecutive months in a hospital, nursing home or assisted living. It can also be called due if you fail to pay property taxes or insurance, keep up the home, or meet other loan terms. A surviving co-borrower or an eligible non-borrowing spouse can delay that date.

After a due-and-payable notice, heirs have 30 days to act, and extensions of up to six months may be possible to sell or refinance. To keep the home, they repay the full balance. To sell it, they repay the balance, or if the home is worth less, sell for at least 95% of its appraised value; mortgage insurance covers the shortfall, and nothing more is owed. If you hope to pass the house on, go over these options with your heirs now as part of your estate plan.

A reverse mortgage fits owners who expect to stay for many years, hold most of their wealth in the home, and value retirement income or a standby line more than leaving the house to heirs. It fits poorly if you may move within a few years, because the upfront costs are spread over too little time. Borrowing young has its own risk: the CFPB warns you may run out of money when you are older, with less income and higher health bills, and longevity risk makes that more likely.

The CFPB suggests weighing other options first: waiting; a home equity loan or HELOC, which may cost less but needs monthly payments and enough income and credit to qualify; a refinance into a shorter new mortgage; selling and downsizing; and state or local programs that help with property taxes, repairs and utilities.