Reverse Mortgages (HECM), Explained: How They Work, Costs, and Trade-offs

Reverse Mortgages in Plain English

A reverse mortgage is a home loan that lets older homeowners turn part of the equity in their home into cash without selling the home or taking on a monthly mortgage payment. The most common version — and the focus of this guide — is the Home Equity Conversion Mortgage (HECM), a reverse mortgage insured by the Federal Housing Administration (FHA) and available only to homeowners age 62 and older. (Consumer Financial Protection Bureau)

It is called a reverse mortgage because it inverts the direction of an ordinary "forward" mortgage. With a traditional mortgage, you send the lender a payment every month, your balance shrinks, and your equity grows. With a reverse mortgage, the lender can pay you, no monthly mortgage payment is required, and the loan balance rises over time because interest and fees are added to it each month. (CFPB)

A quick word on who we are: HomeWise is an educational publisher — not a lender, broker, or loan servicer. This guide explains how reverse mortgages work in neutral terms, cites government and industry sources you can check yourself, and points you to free, unbiased help. We never sell or share your information with lenders or any third party.

Reverse mortgages sit atop an enormous pool of housing wealth: American homeowners age 62 and older hold record levels of home equity. Even so, the product remains a niche one — the number of new federally insured reverse mortgages endorsed each year is only a small fraction of the traditional mortgage market and runs far below its pre-2009 peak. That gap is a reminder that a reverse mortgage is a specialized tool, not a mainstream one (U.S. Department of Housing and Urban Development).

The Three Types of Reverse Mortgages

Not every reverse mortgage is a HECM. There are three broad categories, and they differ sharply in cost, flexibility, and consumer protections.

• Single-purpose reverse mortgages are offered by some state and local government agencies and nonprofits. They are usually the least expensive option, but the money can only be used for one lender-approved purpose — often home repairs or property taxes — and they are not available everywhere.
• Proprietary (or "jumbo") reverse mortgages are private loans that are not government-insured. Because they are not bound by the FHA lending limit, they are sometimes used by owners of higher-value homes who want to access more equity than a HECM allows.
• HECMs are federally insured by the FHA, are the most widely used, and come with standardized rules — including mandatory counseling and non-recourse protection — that the other two types may not offer.

Because the HECM is by far the most common and the most heavily regulated, the rest of this guide focuses on how it works.

How a HECM Actually Works

Short answer: a HECM lets you draw on your home equity, charges interest and fees that are added to your balance each month, and does not have to be repaid until a "maturity event" — typically when the last borrower dies, sells the home, or permanently moves out.

Here is the mechanical picture. At closing, any existing mortgage on the home must be paid off (often using the reverse-mortgage proceeds themselves), so a HECM usually leaves you with no monthly mortgage payment. From there, you receive money in one of several ways described later in this guide. Each month, the lender adds interest and ongoing mortgage-insurance and servicing charges to what you owe. Because nothing is being paid down, the balance climbs and your remaining equity generally shrinks over time. (CFPB)

Crucially, "no monthly mortgage payment" does not mean "no obligations." You must keep paying property taxes and homeowners insurance, keep the home as your principal residence, and keep it in good condition. (CFPB) Falling behind on those responsibilities is the main way a reverse-mortgage borrower can lose the home — a point we return to below.

HECM Eligibility Requirements

To qualify for a HECM, you generally must meet all of the following:

• Age 62 or older. A HECM is available only to homeowners who are at least 62. (CFPB) If a couple owns the home, the amount available is driven by the youngest borrower's age.
• The home is your principal residence. You must live in the home as your main residence — not a vacation home or rental.
• Enough equity. You need substantial equity. Any existing mortgage or lien must be paid off at closing, which is commonly done with the HECM proceeds themselves. Owners with little equity may not qualify.
• An eligible property type. Single-family homes and many two-to-four-unit properties (where you occupy one unit) can qualify, as can certain FHA-approved condominiums and some manufactured homes that meet FHA standards.
• Ability to meet ongoing obligations. Lenders assess whether you can keep up with taxes, insurance, and upkeep (see the financial assessment below).

You will also complete HUD-approved counseling before you can proceed — the next section explains why.

Mandatory HUD-Approved Housing Counseling

Counseling is required, not optional. Before taking out a HECM, the borrower — and any non-borrowing spouse or co-owner — must receive counseling from a HUD-approved housing counseling agency. You can find a counselor through HUD's HECM roster or by calling (800) 569-4287. (U.S. Department of Housing and Urban Development)

The counseling requirement exists to make sure you understand what you are signing up for before any application moves forward. A session typically covers how the loan works, what it will cost, your ongoing responsibilities (taxes, insurance, upkeep), how the loan affects your heirs, and what alternatives might serve you better. Counselors are independent of any lender, which makes them one of the most valuable — and neutral — sources of information you can consult. There is often a modest fee, which may be reduced or waived depending on your ability to pay.

The Financial Assessment and Life Expectancy Set-Asides (LESA)

Because failing to pay property taxes and homeowners insurance can lead to foreclosure even on a reverse mortgage, lenders perform a financial assessment. This is a review of your income, assets, credit history, and payment history to gauge your ability and willingness to keep those charges current.

If the assessment suggests you may struggle to stay current, the lender may require a Life Expectancy Set-Aside (LESA) — a portion of your available loan funds is carved out and reserved to pay future property taxes and insurance on your behalf. A LESA reduces the cash you can access up front, but it lowers the risk that an unpaid tax or insurance bill triggers a default down the road. Think of it as a built-in safeguard rather than a penalty.

How Much You Can Borrow

Short answer: the amount you can borrow depends on the youngest borrower's age, the interest rate, and the home's appraised value. (CFPB)

Lenders combine those factors into a Principal Limit Factor to calculate your principal limit — the total amount you can draw. In general, the older the youngest borrower and the lower the expected interest rate, the more you can access, because the loan is projected to accrue over a shorter time. The home's value counts only up to the FHA maximum claim amount (MCA), a nationwide cap.

For 2026, the FHA HECM nationwide maximum claim amount is $1,249,125, up from $1,209,750 in 2025, for case numbers assigned on or after January 1, 2026. (HUD) If your home appraises above that cap, the calculation still uses the cap, not the full value. You will never receive the home's entire equity as cash — costs, the interest that will accrue, and the principal-limit formula all reduce what is available.

How You Receive the Money: Payout Options

One of the HECM's defining features is flexibility in how you take the money. (CFPB) The main options:

The line of credit deserves special mention: the unused portion of a HECM credit line generally grows over time, so the amount available to borrow later can be larger than it is today. That growth feature is one reason some financial planners view a standby HECM line of credit as a potential retirement-planning reserve — though, as always, weigh it against the costs described next.

Costs and Fees

A reverse mortgage carries meaningful up-front and ongoing costs. Because you usually are not paying anything out of pocket each month, it is easy to lose sight of how the costs compound onto your balance. Here are the main ones.

Two things to notice. First, most of these costs can be financed into the loan — meaning you do not pay cash today, but they add to the balance and then accrue interest. Second, because the balance grows, the total cost of a reverse mortgage depends heavily on how long the loan is outstanding: a loan held for many years costs far more in cumulative interest and insurance than one paid off quickly.

Non-Recourse Protection: You Can Never Owe More Than the Home Is Worth

Short answer: a HECM is a non-recourse loan. The amount that must be repaid can never exceed the home's value, so neither you nor your heirs are responsible for any shortfall. (CFPB)

This is one of the most important consumer protections in the entire product. Suppose the loan balance grows to $300,000 but the home sells for only $250,000. Your estate is not on the hook for the $50,000 difference — the FHA insurance covers it. That is precisely what the upfront and annual mortgage-insurance premiums pay for: they fund the FHA's Mutual Mortgage Insurance Fund, which absorbs the gap when a home sells for less than the balance owed. In practical terms, non-recourse means a rising balance can consume your equity, but it cannot reach into your other assets or your heirs' pockets.

Your Ongoing Responsibilities — and How Foreclosure Can Happen

Short answer: yes, you can lose your home with a reverse mortgage — most commonly by failing to meet the ongoing obligations, not because of the loan balance itself.

Even with no monthly mortgage payment, HECM borrowers must: (CFPB)

• Pay property taxes on time;
• Keep homeowners insurance in force;
• Pay any HOA or condo dues;
• Maintain the home in good condition; and
• Live in the home as your principal residence.

If you fall behind on taxes or insurance, let required maintenance lapse, or no longer occupy the home as your main residence, the loan can be declared in default and the lender may foreclose. This is why the financial assessment and, where needed, a LESA exist — they are designed to keep these obligations from slipping. If you ever anticipate trouble keeping current, contacting a HUD-approved counselor early is far better than waiting for a default notice.

When the Loan Comes Due: Maturity Events and Repayment

Short answer: a HECM generally does not have to be repaid until a "maturity event." The most common triggers are:

• The last surviving borrower dies;
• The home is sold or the title is transferred;
• The borrower permanently moves out or is absent from the home for more than 12 consecutive months (for example, a long-term move into assisted living or a nursing facility); or
• The borrower fails to meet the loan obligations — unpaid taxes or insurance, or letting the home fall into disrepair.

When a maturity event occurs, the balance — everything borrowed, plus accrued interest and fees — becomes due. Repayment is usually satisfied by selling the home. Because the loan is non-recourse, if the sale does not cover the full balance, FHA insurance makes up the difference and no one owes more than the home was worth. (CFPB) A temporary absence — say, a few months in the hospital — is different from a permanent move; the 12-month occupancy rule is what matters for triggering the loan.

What Happens to Your Heirs and Your Home's Equity

Short answer: after the last borrower dies, heirs typically have a set period to decide what to do, and — thanks to non-recourse protection — they never owe more than the home is worth. (CFPB)

Heirs generally have several options:

• Sell the home and keep any equity that remains after the loan is repaid.
• Keep the home by paying off the loan balance — often by refinancing into a traditional mortgage. If the home is worth more than the balance, heirs can usually satisfy the loan by paying the lesser of the balance or a set percentage of the home's appraised value.
• Deed the home to the lender (a "deed in lieu of foreclosure") if they do not want to keep or sell it.

Lenders provide a window to make this decision and to arrange a sale, and heirs can typically request extensions while a sale is pending. The practical trade-off to understand up front: because the balance grows over the life of the loan, a reverse mortgage reduces the inheritance your heirs receive from the home. If leaving the house free and clear to family is a top priority, that is a central factor to weigh.

Non-Borrowing Spouse Protections

A common worry: what happens to a spouse who is not on the loan? Under current HECM rules, an eligible non-borrowing spouse may be able to remain in the home after the borrowing spouse dies, without the loan becoming due, provided certain conditions are met. These typically include being married to the borrower at the time the loan closed, being identified as a non-borrowing spouse, continuing to live in the home as a principal residence, and keeping taxes, insurance, and upkeep current.

This is called a deferral of the loan's due-and-payable status — the surviving spouse can stay, but generally cannot draw additional funds. The rules here are detailed and have changed over the years, so any couple where one partner is under 62 or otherwise not on the loan should walk through the specifics carefully with a HUD-approved counselor before proceeding. Missing a documentation step at closing can cost a surviving spouse this protection.

HECM for Purchase (H4P): Buying a Home With a Reverse Mortgage

A reverse mortgage is not only for staying put. HECM for Purchase (H4P) lets an eligible buyer age 62 or older use a reverse mortgage to buy a new principal residence and finance part of the purchase — all in a single transaction.

Here is the idea: you combine a down payment (typically from the sale of a previous home or other savings) with HECM proceeds to buy the new home, and then carry no monthly mortgage payment on it, subject to the same ongoing obligations (taxes, insurance, upkeep, occupancy) as any HECM. It is often considered by people who want to "right-size" — moving to a home that better fits their needs, or relocating closer to family — while preserving more of their cash. As with any HECM, counseling is required and the same costs and rising-balance dynamics apply.

Pros and Cons of a Reverse Mortgage

There is no one-size-fits-all verdict. The honest way to evaluate a reverse mortgage is to weigh concrete benefits against concrete trade-offs.

On that "costly early" point: CFPB research found that, for a typical borrower who takes a reverse mortgage at 62 to delay claiming Social Security, by age 69 the costs of the reverse mortgage are roughly $2,300 higher than the extra lifetime Social Security gained — and the average reverse mortgage taken at 62 lasts only about seven years. (CFPB) That does not make reverse mortgages "bad" — it illustrates that timing and purpose matter enormously.

How Reverse Mortgages Affect Government Benefits

Short answer: a reverse mortgage generally does not affect Social Security or Medicare, but it can affect needs-based programs like Medicaid and Supplemental Security Income (SSI).

The key nuance for Medicaid and SSI is retained cash: money you borrow but spend within the month is generally treated differently from money you let accumulate in the bank. Because the rules are technical and vary by state, anyone receiving — or planning to apply for — Medicaid or SSI should confirm the impact with a benefits specialist or elder-law professional before taking a reverse mortgage.

Reverse Mortgage Alternatives

A reverse mortgage is one of several ways to tap home equity or free up cash. Comparing the alternatives honestly is one of the most valuable things you can do before deciding.

Two other paths worth knowing: home-equity sharing or investment products, in which a company provides cash today in exchange for a share of your home's future value (structures and costs vary widely, so read the terms closely), and state or local property-tax deferral programs, which let qualifying older homeowners postpone property taxes at low or no cost. A HUD-approved counselor can help you compare these against a reverse mortgage for your situation.

Scams, Red Flags, and Consumer Protections

Reverse mortgages attract bad actors precisely because they involve older homeowners and large sums of equity. Watch for these red flags:

• High-pressure sales tactics or anyone rushing you to sign. A legitimate process includes independent counseling and gives you time to think.
• Cross-selling of annuities or investments. Be extremely wary of anyone urging you to take reverse-mortgage cash and immediately buy an annuity or investment product — this is a classic abusive pattern.
• Contractor schemes, where a home-repair salesperson pushes a reverse mortgage to pay for unnecessary or overpriced work.
• Anyone who tells you to skip counseling, misstate your occupancy, or add a stranger to your title.

You also have a built-in safeguard: borrowers generally have a three-day right to cancel (the "right of rescission") after closing a reverse mortgage. (CFPB) If you change your mind within that window, you can rescind in writing following the instructions in your closing documents. When in doubt, pause and call a HUD-approved counselor or the CFPB before you sign anything.

How to Cancel, Refinance, or Pay Off a HECM

You are never locked in. A HECM can be exited in several ways:

• Right of rescission. Immediately after closing, you generally have three business days to cancel the loan entirely at no cost, following the written rescission instructions in your documents. (CFPB)
• Pay it off. There is no prepayment penalty on a HECM. You can repay the balance — with interest and fees accrued to date — at any time, from savings, the sale of the home, or other funds, and keep any remaining equity.
• Refinance. You (or your heirs) can refinance into a traditional "forward" mortgage to pay off the reverse-mortgage balance and retain the home. Some borrowers also refinance one HECM into another if their situation changes, though that means paying new closing costs, so weigh it carefully.

Because paying off a reverse mortgage can involve a large sum and tax or estate implications, it is wise to plan the payoff strategy with a counselor or a licensed professional rather than improvising.

Tax and Estate-Planning Considerations

This section is general information, not tax or legal advice — confirm your specifics with a licensed professional or the IRS.

A few widely applicable points: because reverse-mortgage proceeds are loan advances rather than income, they are generally not treated as taxable income. Interest on a reverse mortgage is typically not deductible until it is actually paid — often not until the loan is repaid at the end. And because the loan reduces the equity in the home, it directly affects what passes to your estate.

Reverse mortgages intersect with retirement income planning, Medicaid planning, and inheritance goals in ways that differ from household to household. This is one product where paying for an hour of a fee-only financial planner's, tax professional's, or elder-law attorney's time before you commit can be money well spent — and a HUD-approved counselor is a free starting point.

Who a Reverse Mortgage May — and May Not — Fit

This is a framing exercise, not a recommendation. Only you, ideally alongside a counselor and licensed professionals, can decide what is right for your situation.

It may be worth exploring for someone who:

• Plans to stay in their current home for the long term;
• Has substantial home equity but limited monthly cash flow;
• Can comfortably keep up with property taxes, insurance, and maintenance; and
• Values staying in place more than maximizing the inheritance left to heirs.

It may be a poor fit for someone who:

• Expects to move or sell within a few years — the up-front costs are hard to justify over a short horizon;
• May struggle to pay taxes, insurance, or upkeep, raising foreclosure risk;
• Wants to preserve the home as an inheritance; or
• Relies on Medicaid or SSI, where retained proceeds could disrupt benefits.

Remember the CFPB finding that the average reverse mortgage taken at 62 lasts only about seven years and can be a costly way to bridge to delayed Social Security (CFPB) — a reminder that why and when you use it matter as much as whether.

Your Reverse Mortgage Information Kit: How to Research and Get Free Help

Looking for a "reverse mortgage information kit"? The most trustworthy kit is one you assemble from neutral, free sources — not a sales brochure. Here is what to gather and where to go.

Free, unbiased resources:

• HUD-approved housing counselors — required before a HECM, and useful even if you are only exploring. Find one via HUD's HECM roster or by calling (800) 569-4287. (HUD)
• The CFPB's reverse mortgage guide, which walks through how the loans work and what to watch for. (CFPB)
• The Federal Trade Commission (FTC), for consumer alerts on reverse-mortgage scams and marketing.

Questions to bring to a counselor: How much can I actually access, and how much will be left as equity over time? What are all the up-front and ongoing costs in dollars? What happens to my spouse and heirs? What are my alternatives? What could cause the loan to come due early?

A closing reminder about HomeWise: we publish this to help you understand the product — we do not originate loans, we do not recommend specific lenders, and we never sell or share your information. Use this guide to walk into a counseling session informed, and let independent professionals help you decide.

Glossary of Key Terms

• HECM (Home Equity Conversion Mortgage) — the FHA-insured reverse mortgage; the most common type. (CFPB)
• Maximum Claim Amount (MCA) — the value used to calculate the loan, equal to the home's appraised value up to the FHA cap ($1,249,125 for 2026). (HUD)
• Principal limit / Principal Limit Factor — the total you can borrow, and the multiplier used to determine it, based on the youngest borrower's age, the expected interest rate, and the MCA.
• Expected rate — the interest-rate assumption used to set the principal limit.
• MIP (Mortgage Insurance Premium) — the FHA insurance charged upfront (2% of the MCA) and annually (0.5% of the balance) that funds non-recourse protection. (HUD)
• LESA (Life Expectancy Set-Aside) — funds reserved from the loan to pay future property taxes and insurance when the financial assessment calls for it.
• Maturity event — an event (death of the last borrower, sale, permanent move-out, or default) that makes the loan due and payable.
• Non-recourse — the feature that guarantees you and your heirs never owe more than the home's value. (CFPB)
• Non-borrowing spouse — a spouse not named as a borrower, who may qualify for a deferral to remain in the home.
• H4P (HECM for Purchase) — using a HECM to buy a new principal residence.

Frequently Asked Questions

What is a reverse mortgage and how does it work? It is a loan that lets homeowners age 62+ convert home equity into cash with no required monthly mortgage payment; interest and fees are added to the balance, which rises until a maturity event. (CFPB)

How much money can you get from a reverse mortgage? It depends on the youngest borrower's age, the interest rate, and the home's value (capped at the FHA maximum claim amount). (CFPB) Older borrowers and lower rates generally allow larger amounts.

What are the requirements to qualify for a HECM? Be 62+, use the home as your principal residence, hold enough equity to pay off any existing mortgage at closing, own an eligible property type, complete HUD counseling, and pass a financial assessment. (HUD)

How old do you have to be to get a reverse mortgage? At least 62 for a HECM. (CFPB)

Do you have to pay back a reverse mortgage? Yes, but not until a maturity event — usually the death of the last borrower, a sale, or a permanent move — at which point the balance plus interest and fees is due, generally satisfied by selling the home.

What happens to a reverse mortgage when you die? Heirs typically have a set period to sell the home, pay off the loan (often by refinancing), or deed it to the lender; non-recourse protection means they never owe more than the home is worth. (CFPB)

Can you lose your home with a reverse mortgage? Yes — most often by failing to pay property taxes or insurance, letting the home deteriorate, or no longer living there as your principal residence. (CFPB)

What are the pros and cons? Pros: no monthly mortgage payment, flexible payouts, aging in place, non-recourse protection. Cons: a rising balance, eroding equity, significant costs, and foreclosure risk if obligations lapse.

How much does a reverse mortgage cost in fees? Costs include an origination fee capped at $6,000 (HUD), a 2% upfront FHA MIP plus 0.5% annual MIP (HUD), servicing fees, appraisal, counseling, and standard closing costs.

Do you still pay property taxes and insurance? Yes — plus HOA dues and upkeep, and you must keep the home as your principal residence. (CFPB)

What's the difference between a HECM and other reverse mortgages? A HECM is FHA-insured with standardized protections; single-purpose loans (from some agencies/nonprofits) restrict how funds are used; proprietary/jumbo loans are private and can exceed the FHA limit.

Is reverse mortgage money taxable or considered income? It is a loan advance, so it is generally not treated as taxable income; confirm with a tax professional or the IRS.

How is it different from a home equity loan or HELOC? A HELOC or home equity loan requires monthly payments and qualifying income; a reverse mortgage requires no monthly mortgage payment but grows its balance over time and is limited to borrowers 62+.

Does it affect Social Security, Medicare, or Medicaid? It generally does not affect Social Security or Medicare, but retained proceeds can affect needs-based Medicaid and SSI — check with a benefits specialist.

What happens to my heirs and my home's equity? Your heirs inherit any equity that remains after the loan is repaid; because the balance grows, a reverse mortgage reduces that inheritance, but heirs never owe a shortfall. (CFPB)

Is HUD counseling required? Yes — you must receive counseling from a HUD-approved agency before taking a HECM; find one via HUD or (800) 569-4287. (HUD)

Can I get one if I still owe money on my house? Yes, if you have enough equity; any existing mortgage must be paid off at closing, often using the reverse-mortgage proceeds.

How do you receive the money? As a lump sum, term payments, tenure (lifetime) payments, a line of credit, or a combination. (CFPB)

Can you get one to buy a house? Yes — HECM for Purchase (H4P) lets eligible buyers 62+ use a reverse mortgage to buy a new principal residence.

Can you owe more than your home is worth? No. A HECM is non-recourse, so repayment can never exceed the home's value. (CFPB)

What is the FHA loan limit for a reverse mortgage this year? For 2026 the nationwide maximum claim amount is $1,249,125, up from $1,209,750 in 2025. (HUD)

How do you get out of or pay off a reverse mortgage? Cancel within the three-day rescission window after closing (CFPB), or later pay it off (no prepayment penalty) or refinance into a traditional mortgage.

What are the biggest risks or downsides? A compounding balance, eroding equity, high costs, foreclosure risk if you miss taxes/insurance/upkeep, and a smaller inheritance.

What happens if I move out or into assisted living? If you no longer occupy the home as your principal residence — generally an absence of more than 12 consecutive months — the loan can become due and payable.

Is it a good idea for retirement income? It depends on your goals and timeline; CFPB research found that using one at 62 to delay Social Security can cost about $2,300 more than the benefit gained by age 69, and the average such loan lasts about seven years. (CFPB)