A reverse mortgage is a type of home loan available for older homeowners, typically aged 55 and up. As the name suggests, a reverse mortgage is an arrangement where a homeowner receives payments from a lender that come directly from their home’s equity instead of making monthly payments to build equity, as with a traditional mortgage.
The reverse mortgage payments can be used for many purposes, from home renovations to covering healthcare expenses. Over time, as the loan balance increases, your equity in your property decreases. The balance becomes due when the borrower sells the home, moves out, or passes away.
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The most popular type of reverse mortgage is a Home Equity Conversion Mortgage (HECM). It is the only reverse mortgage that is federally insured by the Federal Housing Administration (FHA), and you must be at least 62 years old to get one. Some lenders who aren’t federally insured will offer reverse mortgages to homeowners as young as 55, but you’ll likely incur more fees and risk if you go this route.
❓Who owns the property in a reverse mortgage? The homeowner keeps the title to the home throughout the life of the loan, so they remain the owner.
Reverse mortgage payout types
The key feature of a reverse mortgage is that you don’t have to make monthly mortgage payments to the lender. You can choose from several options to receive your reverse mortgage payouts:
- Lump sum: Receive a single large payment once you close on your reverse mortgage.
- Monthly payouts: Receive a set amount of money every month. You can choose between a term plan (for a fixed number of months or years) or a tenure plan (for as long as you live in the house). Typically, a tenure plan comes with lower monthly payments because the payments are designed to last for an indefinite, potentially longer, period.
- Line of credit: Use funds as you need them, up to a credit limit — similar to a credit card. This is the most popular type of reverse mortgage, and the unused portion of funds can grow over time.
- Mix of options: Combine monthly payments (either a term or tenure plan) with a line of credit.
💰 Even though you don’t have to make mortgage payments, you are still responsible for other home-related expenses. When taking out a reverse mortgage, you must continue paying property taxes and insurance, and you must also maintain the property in good condition.
Types of reverse mortgages
While HECMs are the most popular, there are three main types of reverse mortgages available for homeowners.[1]
| Type | Description | Best for |
|---|---|---|
| Home Equity Conversion Mortgage (HECM) |
| Most homeowners seeking a reverse mortgage due to its wide availability and federal insurance protections and homeowners who are 62 years old or older |
| Proprietary reverse mortgage |
| Owners of homes valued above the current HECM lending limit ($1,209,750 in 2025) and homeowners who are younger than 62 years old |
| Single-purpose reverse mortgage |
| Homeowners with a specific one-time need that may not qualify them for other types of loans |
How much can I borrow with a reverse mortgage?
You can typically borrow between 40% and 60% of your property’s value with a reverse mortgage. For HECM reverse mortgages, there are a few rules that define how much a homeowner would be able to withdraw.[2] The amount depends on the following:
- Current interest rates: Higher interest rates typically result in less money borrowers are able to access.
- Age of the youngest borrower or non-borrowing spouse: The older the youngest borrower, the more money you may be able to receive.
- The home’s value: You can borrow only up to your home’s appraised value or the annual lending limit, whichever is less.
Note that if you have an outstanding mortgage balance, it must be paid off with the reverse mortgage proceeds, which will reduce the final payout. The fees and closing costs for the reverse mortgage can be deducted from the total loan amount or paid in cash at closing.[3]
Borrowing with a reverse mortgage: Real-life example
Let’s imagine a homeowner who’s 70 years old is considering an HECM. Their home is valued at $500,000, and they have an existing mortgage balance of $50,000. So, how much could they receive?
The total amount you can borrow is calculated by using a principal limit factor (PLF). This percentage is based on the youngest borrower’s age and current interest rates. For HECMs, the principal limit factor is set by HUD. In this scenario, we will use a PLF of 45%.
Initial loan amount
To find the gross loan amount, we multiply the home’s value by the PLF.
$500,000 x 0.45 = $225,000
This $225,000 is the total initial amount a homeowner can access through a reverse mortgage.
However, before the borrower can receive any cash, the loan proceeds must be used to pay off the existing mortgage. In this example, the homeowner also decides to pay the upfront costs of the reverse mortgage with the proceeds. Here’s an estimated breakdown:
| Description | Amount | Details |
|---|---|---|
| Principal limit | $225,000 | The initial amount calculated |
| Existing mortgage payoff | -$50,000 | Must be paid off with the proceeds |
| Upfront mortgage insurance premium (~1.75%) | -$8,750 | A standard FHA requirement |
| Origination and closing costs | -$8,000 | Estimated; can vary by lender |
| Net available funds | $158,250 | The final amount available |
After all deductions, this homeowner can get just over $158,000 in a reverse mortgage from their $500,000 property. They can then decide whether they prefer to receive a lump sum, monthly payments, or establish a line of credit.
Eligibility requirements for a reverse mortgage
To qualify for a reverse mortgage, the borrower must meet specific requirements. Conditions for proprietary and single-purpose reverse mortgages can vary depending on the mortgage lender. However, if you decide to go with an HECM, the criteria are set at a federal level by HUD:[4]
- Age: The borrower must be at least 62 years old, but a spouse younger than that can be listed as a non-borrower on the loan documents.
- Primary residence: The property must be the borrower’s primary residence, which means they occupy for the majority of the year.
- Home equity: The borrower must own their home outright or have a significant amount of equity.
- Financial requirements: The borrower must have the financial resources to pay ongoing property expenses, such as taxes and insurance. These funds can come from the reverse mortgage proceeds.
- Property standards: The home must meet minimum property standards established by the FHA and be in good condition.
- No federal debts: The borrower must not be delinquent on any federal debt, such as income taxes or student loans.
- Counseling: The prospective borrower must attend a counseling session from an HUD-approved agency to discuss the loan’s implications and other alternatives.
As mentioned, while they are similar, requirements can vary if you go with a private lender or opt for a single-purpose reverse mortgage. For example, proprietary reverse mortgages tend to have more lenient requirements — like lowering the minimum age to 55 years.
❓Are there income requirements for a reverse mortgage? There is no minimum income requirement for a reverse mortgage. Lenders are often more lenient with credit scores and don’t require a steady income. However, you must prove you’ll be able to pay property taxes, homeowners insurance, and keep your house in good condition.
Pros and cons of a reverse mortgage
A reverse mortgage could be a good idea for some homeowners. However, it’s important to understand all the advantages and drawbacks before deciding whether it’s the right move in your situation.
✅ Reverse mortgage pros
- No monthly mortgage payments: Getting a reverse mortgage can not only provide you with extra cash, but also free up funds each month from your current home loan payment. Note that you’d still need to pay property taxes and homeowner’s insurance.
- Retain home ownership: The borrower keeps the title to the property as long as they meet the loan obligations.
- Tax-free proceeds: The money you receive is usually considered a loan advance, not income, so it’s likely not taxable.
- Flexible payouts: Choose from various options (lump sum, monthly payments, or line of credit), depending on your needs.
❌ Reverse mortgage cons
- Growing loan balance: Your debt increases over time as interest and fees are added to the balance.
- Reduces home equity and inheritance: The loan is paid back from the home’s sale proceeds, which impacts the equity left for you or your heirs.
- Risk of foreclosure: If the borrower fails to pay property taxes or homeowners insurance, or they can’t keep the house in good condition, it could result in foreclosure.
- Additional costs: Taking out a reverse mortgage requires paying origination fees, mortgage insurance, and closing costs, which can be substantial.
Is a reverse mortgage right for you?
A reverse mortgage can be a wise decision for some homeowners and a poor choice for others. Make sure that you understand that it’s not “free money” — it’s a loan that must be repaid later by you or your heirs.
| A reverse mortgage could be an option if: | Avoid a reverse mortgage if: |
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Alternatives to a reverse mortgage
A reverse mortgage is just one way to access home equity. There are plenty of other home loan alternatives for using your home equity to get additional cash.
| Alternative | Description | Key difference from reverse mortgage |
|---|---|---|
| Home equity loan |
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| Home equity line of credit (HELOC) |
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| Cash-out refinance |
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| Downsizing |
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| Selling and renting |
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Getting a reverse mortgage is an important decision that requires a lot of research. Before you proceed, get objective advice and explore alternatives. Speak with your family and a trusted financial planner to see if this complex loan is the best move in your situation.
If you’re looking to convert your home’s equity into cash, selling may be your best option. Our partners at Clever Offers can provide you with multiple cash offers for you to compare and choose the best one.