Reverse Mortgage: Types, Costs, and Requirements

What Is a Reverse Mortgage?

A reverse mortgage is a loan you take out on your home, similar to a second mortgage. Homeowners age 62 or older are eligible to borrow against their home’s equity with a reverse mortgage and withdraw cash. Most reverse mortgages are home equity conversion mortgages (HECMs) and must meet standards set by the federal government, which insures them. A homeowner can use the funds from a reverse mortgage for any reason. The loan must be repaid when the borrower dies, no longer lives in the home, or sells it.

How a Reverse Mortgage Works

Reverse mortgages get their name because instead of paying a lender, the lender pays the homeowner. The homeowner must be at least 62 years old and have sufficient equity in order to borrow against their equity. If they meet the lender’s requirements, they can take out a reverse mortgage and receive payment with the home acting as collateral.

The amount of money you can borrow with a reverse mortgage depends on your age, the interest rate on the loan, and your home’s value (which can fluctuate with the housing market). You are not legally allowed to take out a reverse mortgage for more than the value of your home. When you apply for a reverse mortgage, you’ll be told if you qualify and, if so, how much you qualify for.

You can also decide how you would like to receive payments: a lump sum (which comes with a fixed interest rate), equal or term monthly payments (with adjustable interest rates), a line of credit, equal monthly payments with a line of credit, or term payments with a line of credit.

Once you take out the loan, interest accrues and gets added to the balance owed. If you opt for the line of credit, your interest accrues on the portion you withdrew from the line. Your home equity will decrease as you take on more housing debt.

You’re not required to repay the loan until you sell the home, move out, and it’s no longer your primary residence, or you die. In the event of your death, your heirs can settle your estate or repay the reverse mortgage if they want to keep the house.

Types of Reverse Mortgages

You have options when it comes to reverse mortgage type, but most people choose a home equity conversion mortgage (HECM), which is sponsored by the government. We’ll explain that in a moment, but we’ll also mention single-purpose reverse mortgages and proprietary reverse mortgages.

HECMs

Home equity conversion mortgages (HECMs) are the most commonly selected reverse mortgages. They’re also known as Federal Housing Administration (FHA) reverse mortgages since you can only get them through a lender approved by the Federal Housing Administration.

To get an HECM, you must complete a counseling session, and your home value must fall below the conforming loan limit set by the Federal Housing Finance Agency. For 2025, the conforming loan limit is $806,500 for most U.S. counties and $1,209,750 for counties with high housing costs. Once approved, you can use the HECM funds for any purpose.

Single-Purpose Reverse Mortgages

Instead of being backed by the federal government, single-purpose reverse mortgages are offered by state and local governments or non-profit agencies. They’re typically less expensive than other types of reverse mortgages because they have lower fees and interest rates.

Unlike HECMs and proprietary reverse mortgages, single-purpose reverse mortgages are only to be used for one purpose that’s approved by the lender. For instance, homeowners might get a single-purpose reverse mortgage for home repairs or to pay property taxes.

Proprietary Reverse Mortgages

If you don’t qualify for a HECM because your home is over the annual limit set by the FHA, you can look into getting a proprietary reverse mortgage. Since these loans are typically bigger, they’re also called jumbo reverse mortgages.

Since proprietary reverse mortgages aren’t backed by the government, private lenders often charge higher interest rates and fees.

Reverse Mortgage Eligibility

As with any loan, you and your home must meet specific requirements in order to qualify for a reverse mortgage.

Requirements for Homeowners

If you’re applying for a HECM or single-purpose reverse mortgage, you must be at least 62 years old and be a homeowner with at least 50% equity. To be considered eligible, you’ll also have to be able to pay the costs associated with taking out a reverse mortgage (like upfront mortgage insurance and closing costs).

You must also complete a Housing and Urban Development (HUD)-approved counseling session. You can expect to pay about $125 and spend around 90 minutes going over the pros and cons of a reverse mortgage. Plus, the counselor should discuss your financial options and how a reverse mortgage might affect your eligibility for other government programs.

If you qualify for the loan, you have specific obligations to fulfill. You must continue to pay property taxes and homeowners insurance while maintaining the property. You should also be prepared to repay the loan once you’ve been absent from the home for more than one year. For example, your loan will become due if you’ve been living in a long-term care facility for medical reasons for over a year.

Requirements for Homes

In addition to meeting borrower requirements, you’ve also got to own a home that’s eligible for a reverse mortgage. The FHA requires you to be the homeowner of a house, condo, townhouse, or manufactured home built on or after June 15, 1976. If you own a home as part of a coop, your home isn’t eligible since you own a share instead of the property itself.

Costs of a Reverse Mortgage

Homeowners are usually familiar with the costs of getting a mortgage, so it’s unsurprising to learn there are several costs associated with getting a reverse mortgage.

Reverse mortgage costs may include:

If you’re getting an HECM, the loan officer must present the Total Annual Loan Cost (TALC) rates. This gives you a complete picture of everything you’ll be charged for. The loan officer can also discuss other financial options and the implications of taking out a reverse mortgage.

Beware of Reverse Mortgage Scams

As reverse mortgages regain popularity, so does the risk of getting scammed. For instance, you might hire a home improvement contractor for renovation or repair work, but instead of completing the project, they take your money and disappear. To prevent this scam, always research contractors and look for professional certification before hiring. You might also structure payment in a way that divides the payment into installments, with the last payment made when the job is done.

Another scam involves being taken advantage of by people you know and trust, like family or caregivers. For example, one of them might persuade you to grant them power of attorney. Then, without your knowledge, they apply for a reverse mortgage on your property and take the money. To avoid this scam, be incredibly cautious about trusting others to make financial decisions for you.

Another scam involves unscrupulous financial advisors selling you products you don’t truly need. For instance, you might meet to discuss taking out a reverse mortgage for a specific project, but the advisor pushes you to use the funds for a high-priced financial product like an annuity so they can earn a hefty commission. Again, do your research on financial advisors. If you’re feeling pressured to open an account or sign up for a financial product, you may be getting scammed.

The Bottom Line

Reverse mortgages are specialized financial products that can be costly to take out, so they’re not a good fit for every homeowner. That said, reverse mortgages can be useful to people age 62 or older who need funds but want to stay in their current home. The mortgage can give homeowners flexibility, especially if they don’t have many other assets to use or they wouldn’t qualify for another personal loan.