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Reverse Mortgages: Everything You Need to Know

If you’re an older homeowner, a reverse mortgage can help you access cash for living expenses, but proceed with caution.

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If you’re a homeowner 62 years or older, there’s a good chance an advertisement for a reverse mortgage has landed in your mailbox. According to the Consumer Financial Protection Bureau, lenders sent a whopping 48 million ads for reverse mortgages through the mail in 2022. More Baby Boomers are retiring, so reverse mortgage companies have plenty of prospective customers.

Reverse mortgages can help you access cash, but these loans come with risks -- and not everyone can get one. The amount of money you can borrow against your home’s equity depends on variables including your age, the home’s value, interest rates and loan limits set by the government

Read on to learn about the pros and cons of reverse mortgages, whether one could make sense for your financial situation and other alternatives worth exploring.

What is a reverse mortgage?

A reverse mortgage is a type of loan offered to seniors who are at least 62 and who have a sufficient amount of home equity -- which is the difference between what is owed on a mortgage and what the home is currently worth. A reverse mortgage transforms that equity into payments. This money isn’t taxable because it’s considered a loan proceed and not income.

A reverse mortgage is the opposite of a traditional mortgage. Instead of paying the lender each month, the lender pays you. You get to access cash based on the amount of equity you have accumulated in your property. 

As long as you’re living in the home, you don’t have to pay back the money, and you retain the title to the house. But someone will have to pay it back when you move out, sell the property or die. Sometimes, that can mean having to sell the house to repay the loan. 

Reverse mortgage requirements

Not everyone is eligible for a reverse mortgage. Homeowners must meet certain eligibility requirements. To qualify for a reverse mortgage, you must: 

  • Be 62 or older
  • Keep up with your property taxes
  • Maintain your home and keep it in good condition
  • Pay your home insurance
  • Live at the home, which can be a single-family unit, a two- to four-family unit (some condominiums are accepted, but co-ops and mobile homes are generally not approved)
  • Have a sufficient amount of equity, usually 50% or higher

How does a reverse mortgage work?

A reverse mortgage allows you to borrow money against your home equity in one lump sum, monthly installments or as a line of credit to draw funds as you need them. Older homeowners often use reverse mortgages to cover home repairs, pay for medical expenses or supplement their retirement income. 

You’ll need to have at least 50% equity to qualify for a reverse mortgage, but a higher equity level allows you to borrow more money. 

Reverse mortgages come in similar offerings as traditional mortgages with fixed or adjustable rates. The money you borrow will accumulate interest based on that rate, meaning you’ll owe more over time. But you don’t have to pay the money back until the last living borrower (you or your spouse) dies, sells the home or moves permanently.

Before you can get a reverse mortgage, you’ll need to participate in an educational session about the product and the process with a counselor from the US Department of Housing and Urban Development. 

Types of reverse mortgages

There are three types of reverse mortgages, all with different terms, requirements, benefits and disadvantages. 

Home equity conversion mortgages

Commonly shortened to a HECM reverse mortgage, home equity conversion mortgages are the most common type of reverse mortgage and are backed by the US Department of Housing and Urban Development. While home equity conversion mortgages have higher upfront costs, they’re popular because there are no constraints on how borrowers use the proceeds. They also have no medical restrictions or income requirements. 

Borrowers are required to meet with a counselor to review the costs, requirements and responsibilities of HECMs. In 2024, the borrowing limit for HECMs is $1,149,825, although an individual’s borrowing limit is based on their appraised value, so the actual amount can be much lower.

Single-purpose reverse mortgages

This type of reverse mortgage isn’t offered everywhere, but it’s generally the least expensive option. Single-purpose reverse mortgages are granted by local and state governments and nonprofit agencies, generally for homeowners with low to moderate incomes. 

These types of loans can be used only for certain purposes, as defined by the lender. For example, you may qualify for a single-purpose reverse mortgage on the condition that it’s used to make repairs to your house.

Proprietary reverse mortgages

Unlike single-purpose and HECM loans, these types of loans are private and not funded by the federal government. Proprietary reverse mortgages are beneficial if your home is valued higher than the HECM cap of $1,149,825. 

How do you pay back a reverse mortgage?

The most common method of paying back a reverse mortgage is by selling the home. And if you die and your heirs are selling the home to pay off the loan, they won’t have to pay more than 95% of the appraised value of the property.

Otherwise, paying back a reverse mortgage can get a bit tricky. For example, if your heirs want to keep the home, they may need to apply to refinance the loan if they can’t cover the costs of paying it back out of their own savings.

Pros and cons of a reverse mortgage


  • Ability to access funds to help in retirement

  • No need to repay the loan until the borrower dies or moves

  • No tax worries because the IRS does not consider the loan income


  • Adds to your debt

  • Can create problems when passing on property to heirs

  • Extra costs, including origination fee, mortgage insurance premiums and servicing fees

Advantages of a reverse mortgage

  • No monthly payments: You can avoid paying monthly mortgage payments as long as you have at least 50% equity. However, you’ll still have to pay property taxes and homeowner’s insurance and keep the home in good condition.
  • Options for spending: Depending upon the type of reverse mortgage you get, you can spend the money any way you wish.
  • Housing security for spouse: If a spouse was not involved in taking out a reverse mortgage, in most cases they can stay in the home even after the borrower dies. They’ll have to pay taxes and insurance.

Disadvantages of a reverse mortgage

  • Scams: Just as there are plenty of legitimate reverse mortgage offers, there are also many illegal scams. If you’ve encountered a reverse mortgage scam, alert your lender and file a complaint with the Federal Trade Commission and your state Attorney General’s office. Follow these tips from the FBI to avoid reverse mortgage scams.
  • Borrowing against equity: When you take out a reverse mortgage, you’re borrowing against the equity you’ve likely worked hard to obtain and taking on more debt. It also leaves fewer assets for your heirs.
  • You’ll owe more over time: That’s because the interest on your loan adds up over time. And interest rates may change. Most reverse mortgages have variable interest rates.
  • Other payments: Just because you won’t have to make mortgage payments doesn’t mean you can live in your home for free. As part of your loan requirement, you’ll need to continue paying property taxes and home insurance.
  • Fees and closing costs: Like other refinance options, reverse mortgages have closing costs and fees you’ll have to pay. Ask your lender to estimate how much those will be.

Alternatives to a reverse mortgage

Refinance your home

While you would essentially be starting over on your mortgage, you may be able to find a better interest rate on your new home loan than your original when you refinance. A cash-out refinance delivers the same benefit as a reverse mortgage: the ability to access money based on your equity. 

You can typically borrow up to 80% of your home’s value through a loan larger than your original, and you’ll receive the difference in a lump sum amount. The difference is that you’ll need to start repaying the loan immediately -- unlike a reverse mortgage where there are no payments until you move or pass away.

Home equity loan

While you’ll have to put your home down as collateral for a home equity loan, you’ll be able to borrow a lump sum of money at a fixed interest rate. However, these types of loans come with higher interest rates. If you use the funds to make improvements or repairs on your home, you may be eligible for a mortgage interest tax deduction.

Sell your home

While you may not walk away from selling your home having pocketed the full value, you could downsize and pay for a new home with cash. Just keep in mind you may have to pay income tax on the sale of your home should the value have increased from when you bought it.

Should you get a reverse mortgage or a cash-out refinance?

If you’re trying to decide between a reverse mortgage and a cash-out refinance, the best option ultimately depends on your financial situation. 

A reverse mortgage is likely a better choice if:

  • You feel financially strapped: A reverse mortgage will help you access money to help cover your monthly expenses and reduce your stress.
  • You don’t want the money in one lump sum: The options for monthly disbursements or a line of credit aren’t available with a cash-out refinance.

A cash-out refinance may be a better move if:

  • You’re still working: Not everyone retires at 62 (as much as you’d like to be able to), and if you’re still earning a steady income, perhaps it’s fairly easy to meet the payment obligations on a cash-out refinance.
  • You don’t want to pay for mortgage insurance: Reverse mortgages come with an upfront annual mortgage insurance premium and a recurring annual premium that tacks on more money to the loan. If you want to avoid those fees, go with a cash-out refinance. However, you’ll still need to pay closing costs on the new loan.

The bottom line

If you’re nearing or already in retirement and have a sizable chunk of equity in your home, a reverse mortgage may create some breathing room in your budget, without the worries about making any additional payments. But this isn’t free money. Reverse mortgages add to your debt, reduce your equity level and can lead to additional concerns around how your heirs will deal with your estate. Think carefully about whether the ability to access cash outweighs those downsides.

Amanda Push is a writer based in Colorado who covers personal finance, technology, safety and security, moving, and more. Her writing has also been featured at,,, and
David McMillin writes about credit cards, mortgages, banking, taxes and travel. Based in Chicago, he writes with one objective in mind: Help readers figure out how to save more and stress less. He is also a musician, which means he has spent a lot of time worrying about money. He applies the lessons he's learned from that financial balancing act to offer practical advice for personal spending decisions.
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