Reverse Mortgages Explained: How They Work, Who Qualifies, and What Seniors Should Know

A reverse mortgage is a loan available to homeowners who are 62 years of age or older. Unlike a regular mortgage where you make monthly payments to a lender, a reverse mortgage works the other way around — the lender pays you. You can receive the money as a lump sum, a monthly payment, or as a line of credit you draw from when needed. The loan does not need to be repaid while you continue to live in the home as your primary residence.

The most common type of reverse mortgage is the Home Equity Conversion Mortgage, known as a HECM (often pronounced "heck-um"). HECMs are insured by the Federal Housing Administration (FHA) and are regulated by the Department of Housing and Urban Development (HUD). Because they carry federal backing, HECMs come with consumer protections that private reverse mortgages do not.

The loan amount you can receive depends on three things: your age (older borrowers qualify for more), your home's current appraised value, and current interest rates. Your home must be your primary residence — vacation homes and investment properties do not qualify. You must also have significant equity in the home, meaning you either own it outright or have a small remaining mortgage balance.

One important detail: you remain responsible for property taxes, homeowner's insurance, and home maintenance throughout the loan. If you fall behind on taxes or let the insurance lapse, the lender can call the loan due. This catches some borrowers off guard, so it is critical to make sure you can manage those ongoing costs.

The loan becomes due when you permanently move out of the home, sell it, or pass away. At that point, you or your heirs repay the loan balance — typically by selling the home. If the home sells for more than the loan balance, your heirs keep the difference. If it sells for less, FHA insurance covers the shortfall and your heirs owe nothing beyond the home itself.

Reverse mortgages are not right for everyone. If you plan to leave your home to children or other heirs, a reverse mortgage will reduce what they inherit. If your goal is to stay in your home and access cash without monthly payments, it can be a reasonable tool — but only after speaking with an independent HUD-approved housing counselor, which is actually required before any HECM can close.