Reverse Mortgage Basics

Here is how reverse mortgages work: the loan pays the borrower instead of the borrower paying the loan.

The most common type is the Home Equity Conversion Mortgage, or HECM (pronounced HECK-um). The FHA insures it, and it is only for homeowners age 62 and older. The purpose of a reverse mortgage is to help older homeowners keep their home, reduce monthly expenses, and/or pay off debts.

A reverse mortgage requires no monthly payments by the borrower. The loan does not have to be paid back until the last borrower dies, the home is sold, or the borrower moves out for good. It can also come due if the borrower stops paying property taxes and insurance or does not keep up the home. At that point, repayment includes the loan balance, accrued interest and mortgage insurance premiums.

Check your home buying eligibility. Start here (Nov 4th, 2026)

How reverse mortgages help homeowners

Some older homeowners are “house-rich and cash-poor” meaning they have considerable equity in the home, but not enough regular income to qualify for any other type of refinance.

A reverse mortgage provides funds to a homeowner based mostly on available equity in the property, not on a monthly payment. So a reverse mortgage applicant can have limited income or past credit problems and still potentially qualify. This is a big advantage of reverse mortgages over other types of loans. However, the lender does review income, credit, and assets (see the guidelines below) to make sure the borrower can keep paying property taxes, insurance, and upkeep.

Types of reverse mortgages

Adjustable-rate HECM

This program allows the borrower to take a line of credit, equal monthly payments, or a combination of different kinds of payments. See “How reverse mortgage proceeds are paid to the borrower” below.

The interest rate can change over the life of the loan. In the first 12 months, the borrower can usually draw no more than 60% of the amount available to them. An exception applies if more is needed to pay off an existing mortgage and other required costs. A lump sum is not an option with an adjustable-rate HECM.

Fixed-rate HECM

A fixed-rate HECM pays the borrower one lump sum at closing, and the interest rate stays the same for the life of the loan. No further money is available after closing. FHA no longer offers a separate “HECM Saver” option with a lower upfront premium. The upfront mortgage insurance premium is now 2% for every HECM (see Fees below).

The borrower usually receives no more than 60% of the available amount at closing. An exception applies if more is needed to pay off an existing mortgage and other required costs. This may be a good option for those who want a fixed-rate reverse mortgage and a single payout.

Reverse mortgages to buy a home

A borrower can also use a reverse mortgage to buy a home. The borrower opens a reverse mortgage for the home, then never has a payment. It’s essentially like receiving the reverse mortgage lump sum payment upfront (see next section). The difference is that instead of receiving cash, the funds go toward paying the purchase price of the home. The HECM for purchase option requires a significant down payment. The amount depends on the age of the youngest borrower and on interest rates. Higher rates mean a larger down payment.

The advantage to using a reverse mortgage in this way is that a borrower can downsize, buy a newer home that requires less maintenance, or otherwise buy a more suitable home, all while ensuring the mortgage payments won’t be a factor during retirement.

This reverse mortgage option, like all reverse mortgage types, suits borrowers who plan to stay in the home until they pass away. Selling a home shortly after buying it with a reverse mortgage can be costly. But keeping the home long-term can prove to be a wise way to own property in retirement.

How reverse mortgage proceeds are paid to the borrower

Term. Equal payments over a specific amount of time. For instance, payments of $100 per month over 20 years.

Tenure. Equal monthly payments as long as the borrower lives in the home. Equity in the property and the youngest borrower’s life expectancy determine the payment amount.

Line of Credit. The borrower may withdraw any amount of money whenever they desire until they exhaust their maximum line of credit.

Modified Term. The combination of a line of credit and monthly payments for a certain amount of months.

Modified Tenure. The combination of a line of credit and monthly payments for as long as the borrowers live in the home

Lump Sum. This option is only available with a fixed-rate HECM. Once the borrower takes the lump sum, no further cash is available. The borrower must make sure they have adequate income to pay taxes, insurance, and HOA dues on the property, as well as other living expenses.

Reverse mortgage guidelines 2026

Amount of money available

The amount of money the borrower can receive depends on the youngest borrower’s age, the home value, current interest rates, and upfront costs. The FHA uses calculations based on the borrower’s life expectancy. Therefore, the older the borrower, the more money potentially available.

For example, at recent interest rates, a 72-year-old reverse mortgage borrower who owns a $400,000 home free and clear can typically borrow less than half of its value before closing costs are deducted. A borrower who is 62 can borrow less than that. Higher interest rates reduce the amount available. For 2026, FHA also counts no more than $1,249,125 of a home’s value. Ask a lender or HUD-approved counselor for a quote based on current rates.

Obviously, the value of the home and any existing liens on the property greatly affect available cash as well.

Income

In earlier years, reverse mortgages had no income analysis. For FHA case numbers assigned on or after April 27, 2015, applicants undergo a financial assessment that includes a review of their income. The assessment checks whether they can keep up with homeownership costs other than the mortgage payment. Such expenses are

• Property taxes
• Homeowners association dues
• Homeowners insurance and flood insurance

The lender will review income from sources such as employment, pension, and even withdrawals from IRAs and 401ks. The borrower must demonstrate they have enough residual income to pay for ongoing home ownership costs. Otherwise, the homeowner could lose their home for reasons other than the mortgage payment.

Assets

A reverse mortgage has closing costs. Because borrowers receive cash from the transaction, the closing costs come out of the reverse mortgage loan proceeds instead of the borrower’s own funds. Therefore, borrowers do not need bank and investment statements to verify sufficient funds to close on a reverse mortgage.

Appraisal & property

The property is the single most important factor when it comes to a reverse mortgage. For this reason, expect heightened scrutiny on the property. The lender will require the borrower to repair any deficiencies. Serious health, safety or structural problems must be fixed before closing. Other repairs expected to cost no more than 15% of the maximum claim amount can be finished within 12 months after closing. The lender holds back 150% of the repair cost from the loan proceeds in a repair set-aside to pay for them. Repairs expected to cost more than 15% must be finished before closing. Costly repairs could potentially be a deal breaker. Be sure to talk to a licensed lender about the property. Get a bid for likely repairs to see if they are feasible to complete with existing funds.

The appraisal will show the repairs needed and will show the current value of the home. Home value is very important, as it determines how much cash is available to the borrower, or if a reverse mortgage makes sense at all.

Credit

For FHA case numbers assigned on or after April 27, 2015, all reverse mortgages require a credit check and a review of the borrower’s credit history. Here are the items the lender will check:

• There are no late tax payments in the past 24 months
• Adequate homeowners insurance is in place
• There is satisfactory payment history for revolving credit, mortgage loans, and installment accounts.

Many homeowners apply for a reverse mortgage because they are in a hard spot financially. What will happen to these individuals? Approval is still possible, but it won’t be as easy as in past years when the approval process did not consider credit history. The lender may require the borrower to set aside part of the loan proceeds (a life expectancy set-aside) to pay for taxes and insurance. Or the lender could still approve the loan with significant compensating factors like large cash reserves.

If the borrower has had past due payments but has resolved those issues, it will be much easier to receive approval.

Bankruptcy & reverse mortgage

A reverse mortgage does not require a waiting period, as long as it’s not a reverse mortgage to purchase a home. Borrowers wanting to buy a home must wait two years from the Chapter 7 bankruptcy discharge, or one year from the Chapter 13 payout period, assuming payments were made on time. The borrower must receive written permission to enter into the mortgage transaction.

Fees

All typical closing costs are applicable on a reverse mortgage. Some examples are title, escrow, appraisal, credit report, as well as other various lender fees

The upfront MIP is 2% of the maximum claim amount for every HECM, including HECM for Purchase. The maximum claim amount is the lesser of the home’s appraised value or the FHA national limit ($1,249,125 in 2026), and for a purchase, the sales price.

There is a 0.50% annual mortgage insurance premium on the loan balance. The premium adds to the loan balance each month. In addition, interest accrues through the life of the loan. Both these costs are payable when the home is sold or upon the borrower’s death.

The loan origination fee charged by the lender can vary greatly, but the maximum is $6,000. The originating lender can charge $2,500 if the home is valued at less than $125,000. For homes worth more than that amount, the lender can charge 2% of the first $200,000 of home value and 1% of the amount over $200,000. For example, for a $300,000 home, the lender could charge a $5,000 origination fee, on top of other customary closing costs.

Reverse mortgage interest rates

Most of the time, interest rates on reverse mortgages are adjustable. This means if rates go up in the future, the amount of interest owed upon selling the home may be more than expected. The exception is the lump sum option, in which a fixed rate is available.

What does the reverse mortgage process involve?

The reverse mortgage approval process is a little different than other loans. The borrower must receive counseling from a HUD-approved HECM counselor before the lender can process the loan application. You can find a HECM counselor here. The lender cannot choose a counselor for you. It must give you a list of counseling agencies to choose from.

The counselor will explain the reverse mortgage process and how borrowers repay loans. The counselor also gives borrowers the opportunity to ask questions about the program directly. All reverse mortgage borrowers must complete the counseling session and provide a certificate of completion to their reverse mortgage lender.

Be sure to keep the original counseling certification signed by the counselor, as the lender needs it to process the loan. The certificate is valid for 180 days. You will receive this certification by mail or from the counselor directly if the session was in person.

The lender orders the appraisal and other documentation needed to close the loan. These include an updated title report, flood certification, and other items. Once the loan is through underwriting and approved, the lender will set up a time and date for the loan closing.

The borrower signs the reverse mortgage closing papers and receives their funds after three business days have passed.

Reverse mortgage FAQ

I have a mortgage on my property now, how much can I get with a reverse mortgage?

Loan amounts for a reverse mortgage depend on the borrower’s age at the time of the application and the current appraised value of the home.

If there are any existing mortgages on the property, reverse mortgage proceeds must first pay off and remove all current liens. The borrower receives the remaining amount under the payment plan they choose.

My parents are thinking of getting a reverse loan, what happens when they pass away?

The reverse mortgage lender does not own the home, and ownership does not transfer in any way. All heirs to an estate are not affected and are eligible to inherit the estate regardless of any reverse mortgage on a home.

The outstanding lien for the reverse mortgage is the amount borrowed plus accrued interest, mortgage insurance premiums, and fees. Heirs can pay the balance in full or sell the home. A sale for the lesser of the loan balance or 95% of the home’s appraised value is enough to pay off the loan. Once the home is sold, the reverse lender is paid and the lien is released.

More reverse mortgage questions

Can my parents be foreclosed on?

There are no monthly mortgage payments to a reverse mortgage lender, so the lender cannot foreclose for a missed loan payment. However, reverse mortgage borrowers must keep property taxes and insurance current and maintain the home. If they do not, the lender can call the loan due and payable. If the problem is not fixed, the lender can foreclose. The local authority that collects property taxes could also seize the home for unpaid taxes.

What’s the difference between an equity loan and a reverse mortgage?

An equity lender or a cash-out refinance lender must determine the borrower has sufficient income to make the monthly payments back to the mortgage company. If the borrower misses those payments, the lender can foreclose, and the borrower can lose the home. A reverse mortgage does not have monthly mortgage payments, so the lender cannot foreclose for missed payments. The lender can still foreclose if taxes, insurance, or upkeep fall behind.

Do condominiums qualify for a reverse mortgage?

Yes, condominiums qualify as long as the project is HUD-approved or the unit gets FHA single-unit approval. Other qualifying properties include single-family homes, manufactured homes, and 2-4 unit homes (duplex to fourplex) as long as the borrower occupies one of the units.

Recent reverse mortgage changes

What are the recent changes with reverse mortgages?

For FHA case numbers assigned on or after October 2, 2017, every HECM has a 2% upfront mortgage insurance premium and a 0.50% annual premium. The separate HECM Saver option with a lower upfront premium no longer exists.

A fixed rate is still available, but only with a single lump sum payout at closing.

For reverse mortgages with FHA case numbers assigned on or after April 27, 2015, a financial assessment is required. The lender will review credit, income, and assets. This review checks whether the applicant can continue to pay property taxes, HOA dues, homeowners insurance, and other costs of owning the home.

Bottom line: Is a reverse mortgage right for me or my loved one?

With some research, a meeting with a HUD-approved HECM counselor, and solid numbers from your lender, you should be able to make a good decision on a reverse mortgage. For many, a reverse mortgage can ease the burden of high monthly housing expenses that put a strain on a fixed income. And, it can allow older homeowners to stay in the homes they’ve paid for and maintained over the years.

Check your home buying eligibility. Start here (Nov 4th, 2026)