What is a reverse mortgage?

Key takeaways

• Reverse mortgages let eligible homeowners age 62 and older turn home equity into cash without making monthly mortgage payments.
• The loan is typically repaid when the borrower moves out, sells the home or dies, but interest and fees accumulate over time, reducing remaining equity.
• These loans can provide income flexibility for some retirees, but high costs and long‑term effects on heirs make careful review essential.

As millions of Americans reach retirement age with limited savings and rising costs, many homeowners are looking to their houses for financial support. That’s where reverse mortgages come in.

Most reverse mortgages offered today are known as Home Equity Conversion Mortgages, or HECMs. These loans are federally insured and backed by the Federal Housing Administration, or FHA.

Eligible homeowners can access proceeds in several ways, including:

• Fixed monthly income
• A variable-rate line of credit
• A lump-sum payout

Unlike a traditional mortgage, repayment generally isn’t required until the borrower moves out, sells the home or dies. At that point, heirs can sell the home, repay the loan and keep any remaining equity.

While no monthly payments are required, interest and fees accrue over time and are added to the loan value, which typically reduces the amount of equity left in the home.

According to Fidelity, reverse mortgages may offer several advantages for certain homeowners:

• No required monthly mortgage payments.
• Loan proceeds are typically tax-free.
• With FHA-insured HECMs, heirs are protected from owning more than the home’s value, even if the loan balance exceeds it.
• Since 2017, eligible surviving spouses can remain in the home after the borrower’s death.

Reverse mortgages come with some caveats. According to Fidelity, origination fees and closing costs can be high and interest rates vary based on market conditions.

To qualify for a HECM, borrowers generally must:

• Be 62 or older.
• Be current on any federal debt.
• Use the home as their primary residence.
• Own a single-family home, a two-to-four-unit property they live in or a HUD-approved dwelling.

Borrowers are also required to complete an educational session with a HUD-approved HECM counselor before receiving funds.Even with a reverse mortgage, homeowners remain responsible for ongoing costs such as property taxes, homeowners insurance and basic maintenance. Failure to keep up with these obligations can put the loan and the home at risk.Lastly, Fidelity notes that reverse mortgages can offer extra income for some retirees, but they’re complex and can carry long‑term consequences — especially for homeowners hoping to leave their property to heirs. That’s why experts often recommend reviewing the details carefully and talking it through with family before moving forward.

Yes. The homeowner retains title to the property and can remain in the home as long as loan requirements are met.

Potentially, yes. Borrowers must continue paying property taxes, homeowners insurance and maintaining the home. Falling behind on those obligations can put the loan at risk.

With FHA‑insured HECMs, neither the borrower nor heirs owe more than the home is worth. FHA insurance covers the difference.

Heirs may receive less equity than expected because interest and fees accumulate over time. If the home is sold after the borrower’s death, remaining equity goes to the estate.

This story was updated on May 5.