Reverse Mortgage — Turn Your Home Equity into Retirement Income
A HECM reverse mortgage lets homeowners 62 and older access their equity with no monthly mortgage payments. I will walk you through exactly how it works, what it costs, and whether it makes sense for your situation.
How a Reverse Mortgage Actually Works
A reverse mortgage flips the traditional mortgage on its head. Instead of you making monthly payments to a lender, the lender pays you — either as a lump sum, a monthly income stream, a line of credit, or a combination of all three. You continue living in your home, you retain full ownership, and no repayment is required until you sell, move out permanently, or pass away.
The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). That federal insurance is what makes the non-recourse guarantee possible — you or your heirs can never owe more than the home is worth, even if the loan balance grows to exceed the property value.
In 23 years of originating mortgages, I have seen reverse mortgages get a bad reputation they do not entirely deserve. Are they right for everyone? Absolutely not. But for the right homeowner in the right situation, a HECM can be a genuinely powerful retirement planning tool. The key is understanding the real mechanics — not the late-night TV version.
How You Receive Your Money: HECM Payout Options
One of the most flexible features of a HECM reverse mortgage is how you can receive your funds. You choose the option — or combination of options — that fits your retirement cash flow needs.
Line of Credit
Draw funds as needed, when needed. The unused portion of your credit line grows over time based on the interest rate — a feature unique to HECM lines of credit that you will not find with a traditional HELOC. The line cannot be frozen or reduced by the lender as long as you meet loan obligations.
Monthly Payments
Receive a steady monthly income stream for a set period (term option) or for as long as you live in the home (tenure option). This works like a private pension funded by your home equity — predictable income you can count on month after month.
Lump Sum
Take all available proceeds at closing in a single payment. This option is only available with a fixed-rate HECM. Best for paying off an existing mortgage balance or funding a specific large expense. The trade-off is that you do not have access to additional funds later.
Combination
Mix and match. For example, take a partial lump sum to pay off your existing mortgage, set up monthly tenure payments for ongoing income, and keep the remainder as a line of credit for emergencies. This is the approach I recommend most often because it balances immediate needs with long-term flexibility.
HECM Reverse Mortgage Requirements
The eligibility criteria are straightforward, but there are several components to understand.
| Requirement | Details |
|---|---|
| Age | At least one borrower must be 62 or older. If both spouses are on the loan, the younger borrower's age is used for the calculation — which means the available proceeds will be lower. There is no upper age limit. |
| Primary Residence | The home must be your primary residence. You must live in it for the majority of the year. Second homes, vacation properties, and investment properties do not qualify. |
| Home Equity | You must own the home outright or have a remaining mortgage balance low enough to be paid off with the reverse mortgage proceeds at closing. |
| Property Type | Single-family homes, FHA-approved condominiums, 2-4 unit properties (if you occupy one unit), and some manufactured homes built after June 1976 on a permanent foundation. |
| HUD Counseling | All borrowers must complete counseling with a HUD-approved counselor before the loan can proceed. Spouses are encouraged to participate even if they will not be on the loan. This is a consumer protection requirement, and I consider it a good one. |
| Financial Assessment | Lenders evaluate your ability to pay ongoing property taxes, homeowners insurance, and HOA fees. If there are concerns, a Life Expectancy Set-Aside (LESA) may be required — this reserves a portion of your proceeds to cover those costs. |
| Citizenship | U.S. citizens and lawful permanent residents (green card holders) are eligible. Non-permanent residents are not eligible for HECM loans. |
A note on the non-borrowing spouse: If your spouse is under 62, they cannot be a borrower on the HECM. However, they can be designated as an Eligible Non-Borrowing Spouse, which provides protections allowing them to remain in the home after the borrowing spouse passes away — as long as certain conditions are met. This is a critical planning detail I walk every couple through carefully.
How Much Can You Access? The Principal Limit Explained
The amount you can borrow through a HECM is not a fixed percentage — it is calculated using what HUD calls the Principal Limit Factor (PLF), which depends on three variables.
Your Age
Older borrowers qualify for a higher percentage of their home value. At age 62, the PLF is roughly 52% of the maximum claim amount. By age 75, it may be closer to 58-62%. At 85, it can exceed 65%. If there are two borrowers, the younger borrower's age is used — which is why some couples wait until both spouses are 62 to maximize proceeds.
Current Interest Rates
Lower expected interest rates produce higher principal limits, and higher rates reduce them. The expected rate has a floor of 5.0% for PLF calculation purposes, regardless of actual market rates. This is one reason I monitor rate trends closely for my reverse mortgage clients — timing can meaningfully affect how much you receive.
Your Home Value (or the HECM Limit)
The lender uses the lesser of your appraised home value or the 2026 HECM limit of $1,249,125. If your home appraises at $600,000, that is the figure used. If your home appraises at $2 million, the calculation is capped at $1,249,125.
Realistic example: A 72-year-old homeowner in Chandler, Arizona with a home appraised at $550,000 and no existing mortgage might qualify for gross proceeds in the range of $290,000 to $320,000, depending on the current expected rate. After deducting upfront costs (MIP, origination fee, closing costs), the net available amount — what you can actually use — would be somewhat lower. I run exact numbers for every client based on their specific age, home value, and current rates so there are no surprises.
What a Reverse Mortgage Actually Costs
Reverse mortgages carry higher upfront costs than traditional forward mortgages. I believe in full transparency on this point — understanding the cost structure is essential to deciding whether the math works for your situation.
| Cost | Amount | Notes |
|---|---|---|
| Upfront MIP | 2% of appraised value (or HECM limit) | Paid at closing. Can be financed into the loan balance. On a $500,000 home, this is $10,000. |
| Annual MIP | 0.5% of outstanding balance | Accrues monthly. This is the cost of the FHA insurance that provides the non-recourse guarantee protecting you and your heirs. |
| Origination Fee | Varies (FHA caps apply) | FHA limits the origination fee based on home value. On higher-value homes, the fee as a percentage of the loan is relatively small. |
| Third-Party Closing Costs | Appraisal, title, recording | Similar to traditional mortgage closing costs. These are standard and non-negotiable. |
| Ongoing Interest | Accrues on loan balance | Unlike a forward mortgage, you do not pay interest monthly — it is added to the loan balance. This is why the balance grows over time. |
| Servicing Fee | Varies by lender | Monthly administrative fee charged by the loan servicer. Not all lenders charge this. |
The honest trade-off: The costs are real, and they reduce the equity available to you or your heirs in the future. But if the alternative is struggling to cover living expenses, depleting retirement accounts at a bad time, or selling a home you love, the cost of a reverse mortgage may be well worth the financial stability it provides. The question is not whether a reverse mortgage has costs — it does. The question is whether the benefit outweighs them in your specific situation.
HECM for Purchase: Buy a New Home with No Monthly Mortgage Payments
One of the least-known features of the reverse mortgage program is the HECM for Purchase. This allows homeowners 62 and older to buy a new primary residence using reverse mortgage proceeds — combining the home purchase and reverse mortgage into a single transaction.
How It Works
- Sell your current home (or use other available funds) and apply the proceeds as a substantial down payment on the new property — typically 40% to 55%, depending on the youngest borrower's age.
- Finance the remaining balance through a HECM for Purchase. This covers the gap between your down payment and the purchase price.
- Move into your new home with no required monthly mortgage payment. You continue to pay property taxes, homeowners insurance, and maintenance — just like any homeowner.
Who This Is For
- Downsizers — sell the larger family home and buy something smaller, pocketing the difference in equity while eliminating the mortgage payment on the new home.
- Relocating retirees — moving to Arizona from a higher-cost state and want to preserve retirement savings rather than tying them all up in the new home.
- Those moving closer to family — buying near children or grandchildren without depleting savings for the full purchase price.
Why this matters: Without the HECM for Purchase, a retiree would need to either pay cash for the new home (tying up a large portion of savings), take out a traditional mortgage with monthly payments, or set up a reverse mortgage after the purchase — paying closing costs twice. The HECM for Purchase solves this in one step. It is an elegant option that most retirees do not know exists.
When a Reverse Mortgage Makes Sense — and When It Does Not
I am not a salesperson for reverse mortgages. I am a mortgage broker who happens to offer them alongside every other loan program. That means I will tell you honestly whether a reverse mortgage fits your situation or whether another option would serve you better.
A Reverse Mortgage May Be a Good Fit If:
- You are 62 or older with significant home equity and want to supplement retirement income without selling your home.
- You want to eliminate an existing mortgage payment to free up monthly cash flow.
- You need funds for healthcare costs, home modifications for aging in place, or long-term care expenses.
- You want a growing line of credit as a financial safety net — one that cannot be frozen or reduced.
- You are buying a new home in retirement and want to preserve your liquid savings.
- You plan to stay in the home for many years. The longer you stay, the more value you extract from the arrangement.
A Reverse Mortgage Is Probably Not the Right Move If:
- You plan to move within a few years — the upfront costs are too high relative to the short-term benefit.
- You want to leave the home to heirs with maximum equity intact. A reverse mortgage reduces that equity over time as the balance grows.
- You cannot afford property taxes, insurance, and maintenance — failing to meet these obligations can trigger a default on the reverse mortgage.
- You have other, less costly options available — such as a traditional refinance to lower your existing payment, a home equity line of credit if you qualify, or downsizing to a less expensive property.
- Your spouse is significantly younger than 62 — because the younger borrower's age drives the calculation, the available proceeds may be too low to be worthwhile.
The conversation I always have: Before discussing reverse mortgage specifics, I ask every client three questions. What are you trying to solve? What do you want to happen with the home long-term? And have you explored other options? Sometimes the answer is a reverse mortgage. Sometimes it is a rate-and-term refinance, a different loan product entirely, or a conversation with a financial planner about overall retirement strategy. I would rather point you in the right direction than close a loan that does not serve you.
Reverse Mortgage Myths vs. Reality
Reverse mortgages carry more misconceptions than almost any other financial product. Let me clear up the most common ones.
| Myth | Reality |
|---|---|
| "The bank owns your home" | You retain full title and ownership. The lender has a lien — same as any mortgage. You can sell anytime you choose. |
| "You can owe more than the home is worth" | HECM is non-recourse. You and your heirs will never owe more than the home's value at the time of repayment. FHA insurance covers any shortfall. |
| "Your heirs get nothing" | Heirs inherit the home and can sell it — keeping any equity above the loan balance. If the home has appreciated, there may be substantial equity remaining. |
| "Reverse mortgages are a last resort" | Increasingly, financial planners recommend them as a strategic retirement tool — particularly the line of credit option as a hedge against market downturns in retirement portfolios. |
| "You have to be debt-free to qualify" | You can have an existing mortgage — the reverse mortgage proceeds pay it off at closing. The remaining balance becomes your available funds. |
| "The government can take your home" | Neither the government nor the lender can force you out as long as you meet the loan terms: live in the home, pay taxes and insurance, and maintain the property. |
Why Work with a Broker for Your Reverse Mortgage
The reverse mortgage market has fewer lenders than the traditional mortgage market, but pricing and terms still vary meaningfully between them. As a broker, I compare multiple HECM lenders for every client — looking at interest rates, margin spreads, origination fees, and servicing costs.
Here is why that matters: on a reverse mortgage, even a small difference in the expected rate or margin can change your principal limit by thousands of dollars. The origination fee structure also varies — some lenders charge the maximum allowed, while others offer credits that reduce your upfront costs. I find the combination that puts the most money in your pocket.
Equally important, I do not only offer reverse mortgages. If during our conversation I determine that a traditional refinance, a purchase loan, or a completely different approach would serve you better, I will tell you. That objectivity is something you will not get from a lender that only sells reverse mortgages.
Reverse Mortgage Questions
A reverse mortgage allows homeowners age 62 or older to convert a portion of their home equity into cash without selling the home or making monthly mortgage payments. Instead of you paying the lender each month, the lender pays you — either as a lump sum, a line of credit, monthly payments, or a combination. The loan balance grows over time as interest accrues, and repayment is not required until you sell the home, move out permanently, or pass away. The most common type is the FHA-insured Home Equity Conversion Mortgage (HECM).
To qualify for an FHA-insured HECM reverse mortgage, at least one borrower must be 62 years or older, the home must be your primary residence, you must own the home outright or have a low enough remaining mortgage balance that can be paid off with the reverse mortgage proceeds, you must complete HUD-approved counseling, and the property must meet FHA standards. You also need to demonstrate the ability to pay ongoing property taxes, homeowners insurance, and maintenance costs.
Yes. You retain full ownership and title to your home with a reverse mortgage. The lender places a lien on the property — just like any mortgage — but you remain the homeowner. You can continue to live in the home as long as you meet the loan obligations: maintaining the property, paying property taxes, keeping homeowners insurance current, and using the home as your primary residence.
No. HECM reverse mortgages are non-recourse loans, which means you or your heirs can never owe more than the home is worth at the time of repayment. If the loan balance exceeds the home's value when the loan comes due, FHA insurance covers the difference. This is one of the most important borrower protections built into the HECM program.
For 2026, the maximum claim amount for HECM reverse mortgages is $1,249,125. This is the maximum property value used to calculate your available loan proceeds — it is not the amount you will receive. Your actual loan amount depends on your age, current interest rates, and the appraised value of your home. Even if your home is worth more than $1,249,125, the calculation is capped at that figure.
HECM reverse mortgage costs include an upfront mortgage insurance premium (MIP) of 2% of the appraised value or lending limit (whichever is less), an annual MIP of 0.5% of the outstanding loan balance, an origination fee capped by FHA guidelines, third-party closing costs such as appraisal and title work, and ongoing interest that accrues on the loan balance. Most of these costs can be financed into the loan rather than paid out of pocket. The upfront costs are higher than a traditional mortgage, which is why it is important to understand the full picture before proceeding.
When the last borrower or eligible non-borrowing spouse passes away, the loan becomes due. Heirs have several options: they can sell the home and keep any equity above the loan balance, they can refinance the reverse mortgage into a traditional mortgage to keep the home, or they can deed the home to the lender. If the home is worth less than the loan balance, heirs can walk away with no personal liability — the FHA insurance covers the shortfall. Heirs typically have up to 12 months to settle the loan.
Is a Reverse Mortgage Right for You?
I will walk you through the numbers, explain every cost, and give you an honest assessment of whether a reverse mortgage fits your retirement plan. No pressure, no obligation — just straightforward answers.
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