Overview

Reverse mortgages let eligible homeowners tap home equity without monthly principal-and-interest payments. The most common U.S. product is the HECM (Home Equity Conversion Mortgage), insured by HUD; private and single‑purpose options also exist. HECMs require counseling and a financial assessment and are non‑recourse loans: the borrower or heirs won’t owe more than the home’s value at sale (HUD/HECM program). (Source: HUD and CFPB).

Eligibility and required steps

  • Age and occupancy: At least one borrower must be 62 or older and the home must be the primary residence. (HUD)
  • Ownership: You must own the home outright or have a low mortgage balance to pay off with loan proceeds.
  • Counseling: Federal HECMs require a HUD‑approved counseling session to ensure borrowers understand costs and alternatives. (HUD)
  • Financial assessment: Lenders evaluate your ability to keep up property taxes, homeowner’s insurance, and home maintenance. Failure to meet these obligations can trigger repayment. (CFPB)

Types of reverse mortgages

  • HECM (federally insured): Most common; offers principal limit based on age, home value, and interest rates and includes mortgage insurance premiums.
  • Single‑purpose: Offered by some state or local agencies for a specific need (e.g., home repairs); usually lower cost but limited use.
  • Proprietary (private): For higher‑value homes; terms vary and typically do not carry HUD insurance.

Costs and how they build up

  • Upfront costs: Origination fee, appraisal, title and closing costs, and the required HECM mortgage insurance premium (for HECMs).
  • Ongoing costs: Servicing fees and interest on the outstanding balance. Interest compounds, so loan balances typically grow over time.
  • Long‑term cost implication: Because interest accrues and payments are deferred, the effective cost (total dollars paid) can be higher than a traditional mortgage or other equity options.

How benefits and taxes are affected

  • Benefits: Loan proceeds are generally not taxable income (they’re loan advances), but how you use proceeds can affect needs‑based benefits like Medicaid or SSI if assets increase. Consult the CFPB guide and your state Medicaid office before borrowing. (CFPB)
  • Taxes: You remain responsible for property taxes; a tax lien or failure to pay can lead to default.

Risks and common pitfalls

  • Home responsibilities: You must keep the home as your primary residence, pay property taxes, carry insurance, and maintain the property. Failure to do so can trigger foreclosure.
  • Reduced estate equity: Because interest and fees accrue, less equity will be left for heirs.
  • Heirs’ options: Heirs can repay the loan, sell the home to repay the balance, or let the lender sell the home; HECMs are non‑recourse, so liability is limited to the sale proceeds. (HUD)
  • Costs vs. alternatives: Some borrowers pay more in the long run than with a modest cash‑out refinance, HELOC, or downsizing. Compare options carefully — see our guide on Home Equity Options: HELOC vs Home Equity Loan vs Reverse Mortgage.

Practical examples and strategy (from practice)

In my experience advising clients, reverse mortgages can fit when a retiree needs steady monthly income or a safety reserve and plans to remain in the home long term. For example, a 70‑year‑old homeowner with substantial equity who wants to avoid selling may benefit from HECM tenure or line‑of‑credit options; however, borrowers should weigh how quickly interest will reduce equity if they intend to leave the home to heirs.

Professional tips

  • Complete HUD counseling and get at least two lender quotes.
  • Use proceeds for non‑recurring needs (medical expenses, home modifications) rather than ongoing expenses, unless you understand the long‑term compounding effects.
  • Consider a reverse mortgage line of credit (HECM LOC) because unused LOC growth is protected from further principal limits.
  • Review alternatives first (refinance, downsizing, HELOC). Our comparison of HECM vs Private Reverse Mortgages: What Seniors Should Know can help clarify differences.

Common questions (brief answers)

  • If I owe more than the home is worth, do I or my heirs owe the difference? No — HECMs are non‑recourse; repayment is limited to the home sale proceeds (HUD).
  • Can the lender force me to sell while I still live there? Only if you violate loan terms (stop living there as primary residence, fail to pay taxes/insurance, or abandon the property).

When to avoid a reverse mortgage

  • You plan to move or downsize within a few years — high upfront costs and accruing interest often make short‑term use expensive.
  • You need to preserve the home as an estate asset for heirs without reducing equity.

Authoritative resources

Disclaimer

This article is educational and reflects general practices and my professional observations; it is not individualized financial, tax, or legal advice. Consult a HUD‑approved counselor and a qualified financial planner or attorney to evaluate your situation before taking a reverse mortgage.