Reverse Mortgage for Seniors: How It Works and What It Costs

A reverse mortgage for seniors lets a homeowner 62 or older turn home equity into cash with no monthly mortgage payment. The balance grows over time and is repaid when the last borrower sells, moves out for good or dies. You still pay property taxes, homeowners insurance and upkeep.

Most rules below apply to the Home Equity Conversion Mortgage (HECM), the FHA-insured loan behind most reverse mortgages.

How a reverse mortgage for seniors works

How does a reverse mortgage work? The lender advances money against your equity, and you make no monthly mortgage payment. Meanwhile, interest and mortgage insurance premiums go onto your balance each month, so your debt rises as your equity falls.

Any existing mortgage must be paid off first, with your own funds or from the loan proceeds. You receive what remains after that payoff and the loan’s costs.

A HECM is also non-recourse: you or your heirs never owe more than the home is worth when the loan comes due and the home is sold. FHA mortgage insurance covers any shortfall.

The loan comes due when:

• The last borrower sells the home or transfers title.
• The last borrower dies, unless an eligible non-borrowing spouse qualifies to stay.
• No surviving borrower lives there as a primary residence. A stay in a health care facility counts as moving out after 12 consecutive months, if no other borrower lives there.
• Property taxes or insurance go unpaid, or the home falls into disrepair.

If that structure could fit your plans, compare HECM lenders to see how their fees differ.

Types of reverse mortgages: are all reverse mortgages FHA?

No. There are three types of reverse mortgages, although HECMs make up most of the market.

• HECM. FHA insures it, and HUD calls it the only federally insured reverse mortgage.
• Proprietary (jumbo). Private lenders offer these without federal insurance, typically for higher-value homes. Some accept borrowers from age 55 in select states.
• Single-purpose. State and local governments and nonprofits offer these for one use, such as home repairs or property taxes. They may be limited to certain areas and to low- or moderate-income owners.

Payout options: lump sum, monthly payments or a line of credit

A fixed-rate HECM is always paid as a single lump sum at closing, with no later draws. An adjustable-rate HECM offers the other five plans.

In the first 12 months, you generally can’t take more than 60% of your initial principal limit, the total a HECM makes available. However, if mandatory obligations such as closing costs and a mortgage payoff exceed 50% of that limit, you can cover them and take up to another 10%.

The unused part of an adjustable-rate line of credit also grows monthly, at the loan’s rate plus the annual mortgage insurance rate. See the full HECM payout rules before you pick a plan.

Who qualifies for a reverse mortgage for seniors

You may qualify for a HECM if you meet these HUD rules:

• Age. Every borrower must be 62 by closing. A younger spouse can be an eligible non-borrowing spouse and may stay in the home after the borrower dies, if that spouse keeps meeting HUD’s conditions.
• Residence. The home is your primary residence.
• Equity. You own it outright or can pay off the balance at closing.
• Property. Options include a single-family home, a 2–4 unit home where you live in one unit, an eligible manufactured home, and an FHA-approved condo or a unit with single-unit approval.
• Federal debt. You have no delinquent federal debt, although proceeds may pay it off.
• Counseling. You complete a session with a HUD-approved counselor.

Since 2015, lenders have also run a financial assessment of your credit history and residual income, which is the money left after monthly expenses. FHA sets no minimum credit score for a HECM, so past credit problems may not end your application. If the assessment falls short, the lender may require a life expectancy set-aside, which holds back loan funds to pay property taxes and insurance and leaves you less cash.

Bankruptcy waiting periods, generally two years after a Chapter 7 discharge, apply only to a HECM for Purchase. A HECM on your current home has no stated waiting period, but the lender still reviews the bankruptcy. Our guide to HECM requirements covers each rule in detail.

How much you may get

Your amount depends on the age of the youngest borrower or eligible non-borrowing spouse, the expected interest rate and the maximum claim amount. That amount is the lesser of the appraised value, the sales price on a purchase, or the 2026 FHA national limit of $1,249,125. Older borrowers and lower rates get more.

For example, say the youngest borrower is 72, the home appraises at $300,000, and the expected rate is 7.000%, an illustration and not a current rate. HUD’s factor for that age and rate is 0.372, so the principal limit is $300,000 × 0.372 = $111,600.

At age 62, the factor drops to 0.312, or $93,600. By contrast, at age 72 and 6.000%, it rises to 0.416, or $124,800. These figures come before closing costs and any mortgage payoff, and a lender’s quote may differ.

Reverse mortgage closing costs and other fees

The CFPB says a reverse mortgage typically costs more than other home loans. Most costs can come out of the loan, but every dollar financed adds to your balance and leaves you less to spend.

Example: reverse mortgage closing costs on a $300,000 home

Assume a $300,000 appraised value, which is also the maximum claim amount, and the highest origination fee allowed:

• Upfront MIP: $300,000 × 2% = $6,000
• Maximum origination fee: ($200,000 × 2%) + ($100,000 × 1%) = $5,000
• Total: $11,000

That total leaves out third-party closing costs, interest, servicing fees, property taxes and homeowners insurance. Our guide to home loan closing costs explains the third-party charges.

Reverse mortgage rates

Reverse mortgage rates are not the regular mortgage rates you see in the news. For a HECM, ask each lender for its rate, margin and Total Annual Loan Cost (TALC) rates. Because origination fees, rates and servicing fees vary by lender, compare a few HECM offers before you commit.

Using a HECM to buy a home

A HECM for Purchase lets you buy a new primary residence with a reverse mortgage and a large down payment, with no monthly mortgage payment afterward. It can help you downsize, although selling soon after buying can be costly. See the HECM for Purchase rules before you make an offer.

How to apply for a reverse mortgage for seniors

1. Start with counseling. Find a HUD-approved counselor through HUD’s counselor search or at 800-569-4287. Your lender gives you a list of agencies, but you choose one. The certificate stays valid for 180 days.
2. Apply with a lender. It can’t charge fees or process the application until it has your signed certificate. HUD’s HECM page links to a lender search.
3. Complete the appraisal and repairs. Serious health and safety problems must be fixed before closing. Other repairs costing up to 15% of the maximum claim amount can wait up to 12 months, with 150% of the cost held back from the loan.
4. Finish the financial assessment. An underwriter reviews your credit and income.
5. Close on the loan. Make sure proceeds go only to you.
6. Know your right to cancel. On most reverse mortgages, you have three business days after closing to cancel in writing. This right does not cover a HECM for Purchase.

What happens to the house and the heirs

The lender does not take title. When the last borrower dies, the servicer sends a notice that the loan is due, and heirs can choose among these options:

• Keep the home. They repay the balance, often with a new loan of their own.
• Sell the home. They repay the loan from the sale and keep what’s left.
• Sell for less than the balance. If the loan exceeds the home’s value, they can sell for at least the lesser of the balance or 95% of the appraised value, and mortgage insurance covers the rest.
• Hand it over. They give the lender a deed in lieu of foreclosure.

HUD’s fact sheet tells heirs who keep the home to pay the balance in full. Yet its handbook counts a post-death transfer of title as a sale, so ask the servicer in writing whether the 95% payoff applies.

The CFPB says heirs have 30 days after the notice to buy, sell or turn over the home, possibly extended up to six months. HUD also allows up to two 90-day extension requests with proof of a sale or payoff effort. Meanwhile, property taxes and insurance stay with the estate until title transfers.

Can you lose your house?

Yes, although not for a missed loan payment, since there is none. You can lose the home if you don’t pay property taxes, insurance or HOA dues, or if you don’t keep up the property. Moving out for good also makes the loan due.

If you fall behind, the servicer must name the problem and give you 30 days to respond. You may be able to fix it or get a repayment plan.

Reverse mortgage pros and cons

IRS Publication 936 (2025) treats reverse mortgage payments as loan advances, so they aren’t taxable. The FTC says the money typically won’t affect Social Security or Medicare. For SSI, SSA doesn’t count these payments as income, but money you still hold after the month you receive it can count as a resource. Therefore, talk with a tax professional or benefits adviser about taxes, Medicaid and SSI before you draw funds.

Common scams to watch for

A HECM is a legitimate federal program, yet scammers target older homeowners who want one. Federal agencies, including the CFPB, warn about these schemes:

• Contractors. Be wary when a contractor suggests a reverse mortgage to pay for repairs.
• Veteran-targeted ads. VA offers no reverse mortgages, even though some ads imply VA approval or promise veterans special deals.
• Foreclosure-rescue offers. Companies can’t collect upfront fees for foreclosure help, and the FTC warns that “rescue” loan paperwork can hide a deed transfer.
• “Advisers” who manage the proceeds. Walk away if someone urges a lump sum for a “can’t miss” investment or annuity. Loan officers can’t sell you investments.

Alternatives to a reverse mortgage for seniors

Compare these options first, since some may cost less. The loans below usually depend on your income and credit, and missed monthly payments can lead to foreclosure.

• Cash-out refinance: Replaces your mortgage with a larger loan and pays you the difference.
• Home equity loan: Adds a second mortgage and pays a lump sum.
• HELOC: Lets you draw as needed and pay interest on what you use.
• Downsizing: Selling and moving to a less costly home can lower your expenses.
• Property tax deferral or a single-purpose loan: Ask your county tax office or Area Agency on Aging.

Many lenders cap a home equity loan or HELOC at about 80% to 85% of the home’s value. You can also read about getting a mortgage in retirement and other ways to tap home equity for seniors.

Reverse mortgage for seniors FAQ

What is the age to qualify for a reverse mortgage?

FHA requires every HECM borrower to reach 62 by the closing date. Some private lenders go as low as 55 in select states, but those loans carry no FHA insurance.

Are all reverse mortgages FHA?

No. Only HECMs carry FHA insurance, while proprietary and single-purpose loans do not.

How much does a reverse mortgage cost?

Upfront, expect an FHA premium of 2% of the maximum claim amount, an origination fee of up to $6,000, and third-party charges. After closing, interest, a 0.5% annual premium and any servicing fees add to the balance.

What happens to a reverse mortgage when the owner dies?

The balance comes due once the last borrower dies, unless an eligible non-borrowing spouse qualifies to stay. If the debt exceeds the home’s value, heirs who sell can pay it off with the lesser of the balance or 95% of the appraised value.

Is a reverse mortgage a good idea for seniors?

It can suit an older owner who plans to stay, can afford property costs and wants cash without a monthly payment. However, it may be a poor fit if you expect to move soon or hope to leave the home free of debt.

Is a reverse mortgage for seniors right for you?

A reverse mortgage for seniors tends to fit a house-rich, cash-poor owner who wants to stay put. Check the fit:

• You plan to stay long term, because upfront costs weigh most on a short stay.
• Your income covers property taxes, insurance and upkeep for years to come.
• Your heirs know the plan and understand they may need to sell or pay off the loan.
• You have compared the alternatives, including waiting. The CFPB warns that borrowing too young could leave you short later.

Your next step is the required session with a HUD-approved counselor, and a financial adviser can also review the numbers. Afterward, get written quotes from at least two HECM lenders and compare their fees and TALC rates.