How Do Reverse Mortgages Work? A Guide for Seniors

A reverse mortgage is a loan that allows you to borrow against your home’s equity rather than selling it. This can provide you with additional financial flexibility and usually doesn’t impact your Medicare coverage or Social Security benefits.

Increasingly, retirees are using reverse mortgages as a way to access their home’s equity and help supplement their retirement income while remaining in their own home.

Key Takeaways

• Reverse mortgages let you borrow against your home's equity. This can help boost your retirement income, cover medical bills, or pay for home repairs.

• A reverse mortgage isn’t “free money.” You’ll need to repay your loan, with interest, once you are no longer living in your home.

• To qualify for a reverse mortgage, you must meet certain requirements, including being at least 62 years of age, owning your home outright or having a low mortgage balance, and living in your home for at least six months in a year.

What is a reverse mortgage?

A reverse mortgage allows you to borrow against your home’s equity. When you have a reverse mortgage, you can receive monthly payments, a lump sum, or a line of credit. This amount accrues interest over time, and the loan is repaid when you move out, sell your home, or move into assisted living.

Reverse mortgages vs traditional mortgages

With a reverse mortgage, you borrow against your home’s equity and receive money that you can use to supplement your retirement income. This loan accrues interest but is not repaid until you move out of your home or sell your house. As you receive payments, your share in the home’s equity decreases. 

This is different from a traditional mortgage, which is a loan that initially uses your home’s equity to pay for your home. When you have a traditional mortgage, you make monthly payments toward this loan. As you continue repaying the loan, your share in the equity of your home increases. 

Types of reverse mortgages

There are three types of reverse mortgages. These include:

• Home Equity Conversion Mortgages (HECMs): These are federally insured by the Federal Housing Administration (FHA) and are available to homeowners 62 years of age or older. Homeowners can choose to receive a lump sum, monthly payments, or a line of credit (or a combination of these methods). In 2025, the limit for borrowing for an HECM reverse mortgage is $1,209,750.

• Single-Purpose Reverse Mortgages: These are provided by local and state governments and some non-profit groups. The benefit of single-purpose reverse mortgages is that they are often easier to qualify for and less expensive. However, the funds need to be used for a specific purpose, such as property taxes or home repairs. These mortgages aren’t federally insured.

• Proprietary Reverse Mortgage: Proprietary reverse mortgages are offered by private lenders, generally to homeowners with high home values. While these can offer higher amounts, they can have higher fees or interest terms and aren’t federally insured. 

Rules

There are several criteria you must meet to be eligible for a senior’s reverse mortgage. These include:

• Age: You must be 62 years of age or older.

• Homeownership: You need to own your home and have a significant amount of equity in it. This means that you need to either own your home outright or have a small mortgage.

• Primary residence: The home that you are taking your reverse mortgage against needs to be your primary residence for most of the year.

• Financial assessment: You must complete a financial assessment. This shows you can cover necessary fees, like homeowners insurance and property taxes. You also must not have any outstanding federal debt, such as taxes.

How reverse mortgages work for seniors

Understanding how reverse mortgages work can help you make the best financial decision.

Home Equity Conversion Mortgage Program (HECM)

Home Equity Conversion Mortgage is the most common type of seniors’ reverse mortgage, managed by the U.S. Department of Housing and Urban Development (HUD).

You’ll use your home’s equity to borrow money, which can be paid out as a lump sum, a monthly payment, or a line of credit. Interest will be charged on this loan, which is repaid when you no longer live in your home. 

To qualify for a Home Equity Conversion mortgage, you need to participate in a counseling session with a counselor approved by the Department of Housing and Urban Development. This helps ensure that you understand the terms of the loan and are aware of any alternative options.

Reverse mortgage payout options

There are several options for how your reverse mortgage can be paid out. You can also choose a combination of methods. These include:

• Lump sum, where you receive the entire amount (or a large portion) upfront.

• Monthly payments, where you can receive monthly payments the entire time you remain in your home or over a fixed time (i.e., 10 or 20 years).

• Line of credit, where you can withdraw money as you need it. This amount will increase each month as long as you continue to meet the terms of your reverse mortgage agreement.

Nearly 95% of borrowers under the Home Equity Conversion Mortgage program use a line of credit. 

When a reverse mortgage becomes due

In general, reverse mortgages become due when the homeowner is no longer living in the home. A reverse mortgage becomes due when:

• The homeowner moves out, or it is no longer their primary place of residence.

• The house is sold.

• The last homeowner passes away.

• There is a failure to pay property taxes or homeowners insurance, or to keep the home in reasonably good condition.

Reverse mortgage eligibility requirements

Specific age, residency, financial, and property requirements need to be met to qualify for a reverse mortgage for seniors.

Age and residency requirements

You need to be at least 62 years old to qualify for a Home Equity Conversion reverse mortgage. The home that you are borrowing against also needs to be your primary residence. Typically, this means that you need to live there for the majority of the year, at least 6 months.

Financial eligibility criteria

Financial eligibility criteria include:

• Owning your home outright or having a low mortgage.

• Not owing any federal debt, such as federal student loans or income taxes.

• Being able to pay property charges, such as insurance, taxes, and ongoing repairs and maintenance.

Property requirements and restrictions

Your home needs to meet certain property standards. If it doesn’t, you’ll be informed of what repairs you need to make to qualify. This might include addressing any structural, code, or safety issues.

Cooperatives and mobile homes are generally not eligible for a reverse mortgage.

When deciding if a reverse mortgage is a good choice for you, it’s important to consider both the benefits and risks.

Advantages

Advantages of reverse mortgages include:

• Extra income to cover your monthly bills, medical costs, in-home care, home repairs, or the cost of a spouse’s assisted living.

• No monthly mortgage payments.

• Tax-free income that doesn’t affect Social Security or Medicare.

• Retaining title and ownership of your home.

Potential drawbacks

Potential drawbacks include:

• Interest accrues over time, meaning that your loan amount grows the longer it is active.

• May affect your eligibility for certain government services, such as  Medicaid and Supplemental Security Income (SSI).

• A non-borrowing spouse (who isn’t a co-applicant in your reverse mortgage) will not receive mortgage benefits after your passing, although they may be able to stay in the house.

• Lower inheritance for heirs.

• Upfront costs and fees can be high.

• The home needs to be maintained, and failing to keep up with property taxes or home insurance can affect your loan.

Costs

Reverse mortgages include both initial and ongoing costs.

Initial Costs:

• Origination fee

• Legal fees and administration costs

• Real estate closing costs 

• Initial mortgage insurance premium

• Counseling Fee

Ongoing Costs:

• Interest

• Insurance and property taxes

• Services fees

• Annual mortgage insurance premiums

It is best to discuss your options with a housing counselor from a government-approved counseling agency, as they can help you understand the costs involved and compare reverse mortgage options. 

Getting a reverse mortgage

Steps to apply for a reverse mortgage include:

1. An initial application to see how much you qualify for. This usually requires proof of your age and identity, property tax and insurance documents, and a mortgage statement.

2. A consultation with a lender. The lender will usually order an appraisal and property inspection. They’ll then write the loan to present you with the final terms.

3. Finalizing the loan, including choosing how you wish to be paid, paying initial costs, and signing the loan agreement.

Bottom line

A reverse mortgage can be a helpful way for you to benefit from your home’s equity. If your mortgage is mostly or fully paid off and you can cover home insurance, property taxes, and maintenance, then a reverse mortgage can supplement your retirement income. 

However, if you are unsure if you can keep up with regular payments or plan to stay in your home for a shorter time, then another option might be better for you. Working with a financial advisor can help guide you through the process of making this important financial decision.

Frequently asked questions

What is the minimum age for a reverse mortgage?

62 is the minimum age for a federally-insured Home Equity Conversion reverse mortgage in the United States. There may be other private lenders who offer reverse mortgages with a lower minimum age, but these aren’t federally insured.

How much money can I get from a reverse mortgage?

How much you can borrow depends on the value of your home, Federal Housing Administration (FHA) limits, and current interest rates. For 2025, the FHA limit is $1,209,750.

Will I lose my home with a reverse mortgage?

A reverse mortgage allows you to retain 100% ownership of your home, so you are not at risk of losing your home as long as you follow the terms of the loan. This includes paying property taxes or home insurance on time, carrying out home repairs when necessary, and maintaining your home in good condition. 

However, after you move out of your home, you or an heir will be required to pay off the mortgage dues, which are generally covered by selling the property.