A reverse mortgage can be a powerful planning tool—or a costly mistake—depending on how well it fits your goals, your budget, and your timeline.  The difference comes down to understanding how the loan works, what it costs, and what it demands in return.

What a Reverse Mortgage Is—and What It Isn’t

A reverse mortgage is a home loan available to older homeowners that lets you borrow against your home equity while you continue living in the home.  Instead of making monthly payments to a lender (like a traditional mortgage), the loan balance increases over time, because interest and fees accrue on the amount you borrow.  The loan typically becomes due upon the death of the last Borrower, the sale of the home, or the permanent move-out of the Borrower.

Reverse mortgages are not “free money.” They are debt secured by your home—debt that grows with time.  Used well, they can reduce financial stress, fund aging-in-place needs, or create a standby source of liquidity.  Used poorly, they can create unpleasant surprises for borrowers and heirs.

A reverse mortgage doesn’t eliminate housing costs—it eliminates the monthly mortgage payment while shifting the bill to the future.

Who Qualifies: The Core Eligibility Requirements

The most common reverse mortgage in the U.S. is the Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA).  For a typical HECM, the broad eligibility rules include:

• Age: Borrowers are generally 62 or older.
• Equity: You must own your home outright or have substantial equity (often described as significant equity, frequently around 50% or more, depending on age, home value, and rates).
• Primary residence: The home must be your primary residence, not a vacation home or investment property.
• Financial assessment: Lenders assess whether you can cover ongoing property expenses, such as taxes and insurance.

Eligibility is not just a checkbox; it’s a preview of the loan’s central bargain: you can access equity without monthly mortgage payments, but you must keep the home in good standing.

How You Receive the Money: Payout Options That Shape the Outcome

Reverse mortgage proceeds can be structured in several ways.  The “best” option depends on what problem you’re trying to solve—income shortfall, emergency reserves, debt management, or home improvements.

Standard payout options include:

• Lump sum: A one-time draw, helpful in paying off an existing mortgage, covering major expenses, or consolidating debt.
• Line of credit: A flexible pool you can tap as needed—often favored for retirees who want a contingency plan rather than immediate cash.
• Monthly payments (tenure or term): Predictable income support, either for a set number of years or as long as you stay in the home.
• Combination: Some borrowers blend a smaller lump sum with a line of credit or monthly payments.

A practical way to think about this: the payout structure can either reduce risk or increase it.  A large upfront draw may feel empowering, but it can also magnify interest costs if funds are taken long before they’re needed.

In a reverse mortgage, “how” you borrow can matter as much as “how much” you borrow.

Ownership and Responsibilities: You Keep Title, But You Must Keep Up

One of the most persistent misconceptions is that the lender “takes your home.” In most cases, you keep the title and remain the homeowner.  But you also remain responsible for the obligations that legally and physically protect the property.

Borrowers must typically:

• Pay property taxes on time
• Maintain homeowners’ insurance
• Keep the property in reasonable repair
• Continue living in the home as a primary residence

Failing to meet these obligations can trigger default and, in severe cases, foreclosure—even if you’ve never missed a mortgage payment (because you weren’t required to make one).  That’s why a reverse mortgage is often less about “getting cash” and more about sustaining the home’s carrying costs over time.

Repayment and Heirs: What Happens When the Home Is Sold

Reverse mortgages generally come due when the last Borrower no longer occupies the home as a primary residence.  At that point, the loan must be repaid—typically through the sale of the house.  If heirs want to keep the property, they can usually repay the loan using other funds or refinance into a traditional mortgage if they qualify.

A key protection: most HECM reverse mortgages are “non-recourse.” That means the Borrower (or heirs) generally won’t owe more than the home’s value at sale, even if the loan balance has grown beyond that amount.  In other words, the house is the collateral, and the debt usually doesn’t extend to other assets.

Still, heirs should be prepared for time-sensitive decisions.  They may need to coordinate with the loan servicer, assess whether keeping the home is financially feasible, and understand repayment or sale deadlines.

A reverse mortgage can protect heirs from personal liability, but it can’t protect them from the need for a plan.

The Three Main Types of Reverse Mortgages

1) Home Equity Conversion Mortgages (HECMs)

HECMs are the most widely used and are FHA-insured.  They offer multiple payout options and consumer protections, but they also involve mortgage insurance premiums and regulated fees.  HECMs can be used for almost any purpose—living expenses, medical costs, home upgrades, or debt restructuring.

2) Proprietary Reverse Mortgages

Private lenders offer these and are not FHA-insured.  They may be attractive to owners of higher-value homes that exceed HECM lending limits.  Terms and protections vary by lender, so borrowers should scrutinize interest rates, fees, and servicing standards.

3) Single-Purpose Reverse Mortgages

Often offered by state or local agencies or nonprofits, these are typically the least expensive.  But they come with strict restrictions: proceeds may be limited to a specific use, such as home repairs or property taxes.  Availability can be limited by geography and funding.

Costs and Tradeoffs: The Real Price of “No Monthly Payment”

Reverse mortgages carry costs that can be easy to underestimate because they are often financed into the loan rather than paid out of pocket.

Standard cost components may include:

• Origination fees
• Closing costs (similar to a traditional mortgage)
• Ongoing interest on borrowed amounts
• Mortgage insurance (for HECMs)
• Servicing-related charges (depending on the loan)

Because interest accrues over time, reverse mortgages can be expensive if used for long periods—especially if funds are drawn early and sit unused.  The central tradeoff is simple: cash-flow relief now versus reduced equity later.

Mandatory Counseling: A Feature, Not a Formality

Before obtaining a HECM reverse mortgage, borrowers must attend a counseling session with a HUD-approved housing counselor.  This requirement exists for a reason: reverse mortgages are complex and have long-term consequences.

A good counseling session will walk through:

• How the loan balance grows
• What happens if taxes/insurance aren’t paid
• How moving out affects the loan
• What heirs can expect
• Alternatives that may cost less

Treat counseling as due diligence—like reading the fine print with a professional translator.

Alternatives Worth Comparing (Often Side-by-Side)

Before committing, it’s wise to compare a reverse mortgage to other options:

• Home equity loan: Fixed payment, fixed term—predictable but requires monthly payments.
• HELOC: Flexible line of credit, often variable rate—applicable but can become costly if rates rise.
• Downsizing: Can free equity and reduce carrying costs, but may involve moving stress, taxes, and transaction costs.
• Cash-out refinance: May be viable if rates are favorable and income supports the payments.
• Budget restructuring or benefits review: Sometimes the simplest improvements come from optimizing expenses, entitlements, or insurance.

When a Reverse Mortgage Makes Sense—and When It Doesn’t

A reverse mortgage may be worth exploring if you:

• Plan to stay in the home for years
• Need cash flow relief without taking on monthly payments
• Have a reliable plan to cover taxes, insurance, and maintenance
• Want a structured way to use home equity for retirement stability

It may be a poor fit if you:

• Expect to move soon
• Struggle to afford property taxes/insurance today
• Want to preserve maximum equity for heirs
• Are considering it primarily to solve short-term spending habits rather than long-term needs

A reverse mortgage works best as part of a retirement strategy—not as a last-minute rescue plan.

Consult with a competent mortgage broker, your CPA, or a lawyer about the benefits of a reverse mortgage

A Practical Closing Thought

Reverse mortgages occupy a unique place in retirement planning: they can help stabilize cash flow for homeowners who want to age in place, but they do so by exchanging future equity for present flexibility.  The most innovative approach is not to ask, “Can I qualify?” but rather, “Does this improve my life without creating new risks I can’t manage?”

For further guidance, consult a HUD-approved counselor and review consumer education resources from the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC).