“Owning a home is a keystone of wealth…both financial affluence and emotional security.” – Suze Orman
According to Cotality’s Homeowner Equity Report for Q3 2025, the average U.S. homeowner lost approximately $13,400 in equity, though the average borrower still holds around $299,000 in accumulated home equity.
With that much equity sitting in their homes, many older Americans are looking for ways to access it without selling or relocating.
A reverse mortgage is one option worth considering, and understanding the costs, eligibility requirements, and loan types helps you make a more informed decision.
What Is a Reverse Mortgage?
A reverse mortgage is a loan you take out against your home that works differently from a regular mortgage.
How Does a Reverse Mortgage Work?
Rather than paying a lender monthly mortgage payments, the lender pays you by drawing on your home equity.
The loan first pays off your existing mortgage, with the extra money available for any expense of your choice. You remain responsible for property taxes, homeowners insurance, and general home maintenance over the life of the loan.
Reverse mortgage loans are designed for older homeowners who wish to eliminate monthly payments or generate additional retirement income
Types of Reverse Mortgages
The reverse mortgage products you can get include:
HECMs
The home equity conversion mortgage (HECM) is the most widely used reverse mortgage product.
It runs through a Federal Housing Administration-approved lender, which means it carries government backing and must meet FHA lending standards.
Single-Purpose Reverse Mortgages
State and local governments and non-profit agencies offer single-purpose reverse mortgages. The lower fees and interest rates make them a more affordable option.
Lenders do restrict the funds to one approved use, such as home repairs or paying property taxes.
Proprietary Reverse Mortgages
Homeowners whose properties exceed the FHA’s annual loan limit can turn to proprietary reverse mortgages, commonly called jumbo reverse mortgages.
Private lenders offer these loans independently, and borrowers pay higher interest rates and fees as a result.
Read More: Piggyback Loan: Structures, Requirements, Pros, Cons, & How to Get
Reverse Mortgage Eligibility
To qualify for a reverse mortgage, both the borrower and the property must meet the following requirements.
Borrower Requirements
- Must be at least 62 years old with a minimum of 50% home equity
- Able to cover upfront costs, including closing costs and the mortgage insurance premium
- Complete a Housing and Urban Development-approved counseling session, which runs about 90 minutes and costs around $125
- Stay current on property taxes, homeowners insurance, and routine home maintenance
- Repay the loan after spending more than one year away from home
Property Requirements
- Must own a house, condo, townhouse, or manufactured home built on or after June 15, 1976
- Co-op units are ineligible since owners hold a share of the building rather than the property itself
Costs of a Reverse Mortgage
Like any home loan, a reverse mortgage comes with the following costs:
- Application fees
- Mortgage insurance premium (MIP)
- Homeowners insurance
- Origination fee
- Monthly servicing fee
- Closing costs
- Interest (varies by loan type)
- HECM borrowers receive a Total Annual Loan Cost (TALC) disclosure from their loan officer, which breaks down every charge in one place. The loan officer can also review other financial options and explain how the loan affects your overall financial situation.
Reverse Mortgage Pros and Cons
A reverse mortgage may work for some homeowners and poorly for others.
Pros
- Payments are not taxable. The IRS classifies reverse mortgage proceeds as loan funds, keeping them outside taxable income and reducing your annual tax liability.
- You can stay in the home. The title remains in your name, renovations stay your call, and repayment comes due only when you move or sell.
- You will never owe more than the home is worth. Most reverse mortgages are non-recourse loans, capping repayment at the home’s appraised value.
- It supports aging in place. Homeowners can access their home equity without relocating, making it a practical option for funding monthly living expenses in retirement.
Cons
- Qualification is strict. The home equity conversion mortgage sets specific age, residency, and property condition requirements that not every homeowner can meet.
- The costs are significant. The expenses can accumulate well beyond what most people expect.
- Heirs take on the debt. Once the borrower dies, heirs become responsible for settling the outstanding loan balance, which can cut into or eliminate their inheritance.
- It can affect government benefit eligibility. Reverse mortgage payments may impact eligibility for Medicaid and Supplemental Security Income.
- The loan can get complicated. Situations like remarrying after taking out the loan introduce added complexity around repayment obligations and borrower rights.
Alternatives to a Reverse Mortgage
- Sell and downsize. Moving into a smaller property frees up your home equity without a loan and often lowers maintenance costs and property taxes.
- Refinance your mortgage. A lower interest rate or adjusted loan terms can cut your monthly mortgage payments, and a cash-out refinance puts extra cash in your pocket from your equity.
- Take out a HELOC. A home equity line of credit lets you draw from your equity as needed, though closing costs run 2% to 5% of the loan amount.
- Apply for a home equity loan. A home equity loan gives you a lump sum upfront, repaid through fixed monthly payments over 10 to 15 years.
- Rent out part of your home. Renting a room or space to tenants brings in steady extra income without touching your equity.
Reverse Mortgage Scams to Avoid
Watch out for these reverse mortgage scams before they cost you your home or your savings.
Contractor Scams
Some contractors collect payment for renovation or repair work and disappear before completing the job.
Research contractors thoroughly, verify professional certifications, and structure payments in installments with the final payment.
Veteran-Targeted Scams
The Department of Veterans Affairs does not offer reverse mortgage loans.
Some mortgage ads falsely imply VA approval or promise veterans special “no-payment” deals to lure older homeowners who want to stay in their homes.
Verify any offer directly with the VA before engaging with a lender.
Is It Right for You?
Homeowners who plan to stay long-term and need to supplement retirement income or cover rising health care costs tend to get the most out of a reverse mortgage.
For those planning to move soon, the upfront closing costs outweigh the benefits. Ongoing expenses like property taxes and homeowners insurance add financial pressure, and heirs inherit the outstanding loan balance when settling the estate.
Reverse Mortgage vs. Regular Mortgage and Refinance
| Regular Mortgage | Reverse Mortgage | Refinance | |
|---|---|---|---|
| Age Requirement | No age restriction | Must be 62 or older | No age restriction |
| Purpose | Used to purchase a home | Allows homeowners with substantial home equity to borrow a lump sum or receive annuity-like payments | Replaces an existing mortgage with new loan terms, or pulls cash from equity via a cash-out refinance |
| Payments | Borrower makes monthly mortgage payments | Loan balance plus interest becomes due when the borrower dies, sells, or moves out | Borrower makes monthly payments under the new loan terms |
| Regulation | Not regulated by the federal government | Regulated by the federal government | Not regulated by the federal government |
You May Also Like:
Frequently Asked Questions
Why are so many people disappointed by reverse mortgages?
The loan balance grows over time, which means accumulated home equity shrinks faster than many homeowners expect.
At what age is a reverse mortgage a good idea?
It depends on financial needs and housing plans. Some borrowers start at 62, while others wait until their 70s to get more out of the loan.
How does a reverse mortgage affect Social Security?
Reverse mortgage proceeds count as loan funds, so Social Security and Medicare benefits stay unaffected. Holding the funds as cash assets, however, can impact eligibility for Medicaid and Supplemental Security Income.
Conclusion
A reverse mortgage can give older homeowners reliable access to retirement income drawn from years of built-up home equity. Taking the time to research lenders, compare loan options, and speak with a reverse mortgage counselor helps you get the most out of it.
“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” – Suze Orman
For more expert resources and insights on mortgages and other finance topics, subscribe to Financial Daily Update today.
