Reverse Mortgage (HECM) Guide for Homeowners 62+

What a reverse mortgage is

A reverse mortgage is a loan that lets older homeowners borrow against the equity in their home. Instead of making monthly payments to a lender, you receive funds, and the loan balance grows over time as interest, mortgage insurance and fees are added. You keep title to the home and can live there as long as you meet the loan terms.

Most reverse mortgages are Home Equity Conversion Mortgages, known as HECMs. The HECM program is insured by the Federal Housing Administration and overseen by HUD. The youngest borrower must be 62 or older, and the home must be your primary residence. Private reverse mortgage products also exist, with their own terms, but this guide focuses on the HECM.

Counseling comes first

Before a lender can accept your application, you must complete a session with an independent counselor approved by HUD. This is not a formality. The counselor walks through how the loan works, what it costs, how it could affect your estate and benefits, and whether alternatives might serve you better, such as selling and downsizing, a home equity loan or local assistance programs.

The counselor does not represent the lender and does not earn anything if you take the loan. Many people bring an adult child or trusted advisor to the session. When you finish, you receive a certificate that the lender needs to proceed.

How you can receive the money

A HECM offers several ways to receive funds, depending on how the loan is structured:

A line of credit you draw from as needed
Equal monthly advances for as long as an eligible borrower lives in the home
Monthly advances for a fixed period you choose
A single lump sum at closing
A combination of a line of credit and monthly advances

If you have an existing mortgage, it is typically paid off from the proceeds first. Program rules may limit how much you can take during the first year. The amount available overall depends on the age of the youngest borrower or eligible non-borrowing spouse, the home value, and program factors set by HUD.

The responsibilities you keep

A reverse mortgage removes the required monthly principal and interest payment, but it does not remove the costs of owning a home. You must keep paying property taxes, homeowners insurance, flood insurance if required and any association dues. You must also maintain the home in good repair and continue living there as your primary residence.

These are not suggestions. Falling behind on taxes or insurance, or letting the property deteriorate, can put the loan in default and may lead to foreclosure. During the application, the lender reviews your income, credit and expenses to judge whether you can meet these obligations. In some cases, the lender sets aside part of the loan funds to cover future taxes and insurance.

The tradeoffs to weigh

A reverse mortgage is a debt that must be repaid, and it carries real risk. Because interest and mortgage insurance accrue on the balance, the amount you owe rises every month you have the loan. That means less equity for you later and less for your heirs. Upfront costs can be significant and are often financed into the loan, which also reduces your remaining equity.

The loan tends to suit homeowners who plan to stay in the home for many years, have the means to keep up with home costs and have talked through the decision with family. If you expect to move soon or need long-term care away from home, the costs may outweigh the benefits.

When the loan comes due

The loan generally becomes due when the last borrower sells the home, passes away or moves out for an extended period, such as a long stay in a care facility. At that point, the balance is usually repaid from the sale of the home.

Heirs can choose to sell and keep any equity left after repayment, pay off or refinance the loan to keep the house, or turn the property over to the lender. HECMs are non-recourse loans, so the amount owed generally cannot exceed the home's value when sold, and heirs are not personally liable for a shortfall.

Spouses and HECM for Purchase

If your spouse is younger than 62 or not on the loan, ask about protections for an eligible non-borrowing spouse, which may allow them to remain in the home after you pass away if certain conditions are met. Homeowners who want to move can also look at HECM for Purchase, which combines a reverse mortgage with personal funds to buy a new primary residence. For tax and benefits questions, talk to a tax professional or benefits specialist.

Try it: Reverse Mortgage Calculator (estimate only).

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Reverse Mortgages: How a HECM Works