A reverse mortgage is a loan for homeowners 62 and older that lets you convert part of your home equity into cash without selling the home and without a required monthly mortgage payment. Instead of you paying the lender each month, interest and fees are added to the loan balance over time, and the loan is repaid later, usually when the home is sold. Bethany Sanchez (NMLS #2425491) helps homeowners across the Phoenix area compare reverse mortgages with other options, so the decision fits the rest of your retirement plan.
The key point: No monthly mortgage payment is required, but you must continue to live in the home and pay property taxes, homeowners insurance, HOA dues and maintenance. If you do not, the loan can become due and you could lose the home.
How a reverse mortgage works
Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration. The amount you can access depends on the age of the youngest borrower or eligible non-borrowing spouse, current interest rates, and your home’s value up to the annual FHA limit. Older borrowers and lower rates generally mean more available equity.
If you still have a mortgage, the reverse mortgage pays it off first. That alone can free up hundreds or thousands of dollars a month in cash flow, which is why many retirees use a reverse mortgage to eliminate an existing payment.
How you can receive the money
HECMs offer several payout options, and some can be combined:
| Option | How it works | Often used for |
|---|---|---|
| Line of credit | Draw funds when you need them; the unused portion can grow over time | A flexible safety net for healthcare, repairs or market downturns |
| Monthly payments | Fixed payments for as long as you live in the home (tenure) or for a set number of years (term) | Supplementing Social Security or pension income |
| Lump sum | One payment at closing, with a fixed interest rate | Paying off an existing mortgage or a large one-time expense |
| Combination | A mix of the options above | Customizing cash flow and reserves |
Who reverse mortgages fit best
A reverse mortgage can be a strong fit if you:
- Plan to stay in your home for many years
- Want to eliminate an existing mortgage payment
- Need a reserve for healthcare, home modifications or unexpected expenses
- Want to delay drawing from retirement accounts or Social Security
- Are downsizing and want to buy a new home without a monthly mortgage payment, using a HECM for Purchase
It may not be the right fit if you plan to move within a few years, want to leave the home free and clear to heirs, or would have trouble keeping up with property taxes, insurance and upkeep.
Costs to understand
Reverse mortgages have meaningful upfront and ongoing costs, so compare them carefully:
- FHA mortgage insurance: an upfront premium of 2% of the home’s value (up to the FHA limit) and an annual premium of 0.5% of the loan balance. This insurance is what guarantees you will never owe more than the home is worth.
- Origination fee: capped by FHA rules based on the home’s value.
- Third-party closing costs: appraisal, title, recording and similar fees, as with any mortgage.
- Interest: added to the balance over time, so the balance grows rather than shrinks.
Many of these costs can be financed into the loan instead of paid out of pocket, but financing them reduces the equity available to you. Your Loan Estimate and the counselor’s review will lay out the full picture.
Counseling comes first
Before you can apply for a HECM, you must meet with an independent, HUD-approved reverse mortgage counselor. The session covers how the loan works, your obligations, costs and alternatives, and it is designed to protect you. Family members are welcome to join. Bethany can share a list of approved counseling agencies, or you can find one through HUD’s housing counselor search.
Your ongoing responsibilities
To keep your reverse mortgage in good standing, you must:
- Live in the home as your primary residence.
- Pay property taxes and homeowners insurance on time, plus flood insurance and HOA dues if they apply.
- Keep the home in good repair.
- Let the servicer know if you will be away for an extended period, such as a long hospital or care-facility stay.
If the financial assessment shows a risk of missing taxes or insurance, the lender may set aside part of the loan in a reserve to pay them for you.
Alternatives to compare
A reverse mortgage is one of several ways to use home equity. Depending on your goals and income, compare it with a HELOC or home equity loan, a cash-out refinance, downsizing with a traditional mortgage, or selling and renting. If you are buying your next home before selling the current one, a bridge loan may also be part of the plan. As a wholesale broker, Sunset Home Lending can compare HECM and proprietary reverse mortgage lenders alongside these alternatives so you can see the trade-offs side by side.
Start the conversation
Reverse mortgages are a family decision as much as a financial one. Bethany is happy to walk you, and anyone you want involved, through the numbers with no pressure. Call or text (760) 713-3814, or request a call back and choose “Reverse mortgage.”
Frequently asked questions
Who qualifies for a reverse mortgage?
For a federally insured Home Equity Conversion Mortgage (HECM), the youngest borrower must generally be at least 62, the home must be your primary residence, you need significant equity, and you must complete counseling with a HUD-approved counselor. Lenders also complete a financial assessment to confirm you can keep paying property taxes, insurance and other property charges.
Do I still own my home with a reverse mortgage?
Yes. You keep the title and can live in the home as long as you meet the loan terms: living there as your primary residence, paying property taxes, homeowners insurance and any HOA dues, and keeping the home in good repair.
When does a reverse mortgage have to be repaid?
The loan generally becomes due when the last borrower sells the home, moves out permanently, or passes away, or if the loan terms are not met. The balance is usually repaid by selling the home or refinancing. With a HECM, neither you nor your heirs owe more than the home is worth when it is sold, because FHA insurance covers any shortfall.
Can my heirs keep the house?
Yes. Heirs can keep the home by repaying the loan, often by refinancing, or by paying the lesser of the balance or 95% of the home's appraised value under HECM rules. They can also sell the home and keep any remaining equity.
Can I use a reverse mortgage to buy a home?
Yes. A HECM for Purchase lets buyers 62 and older buy a new primary residence with a large down payment and no required monthly mortgage payment afterward. It is popular with retirees who are downsizing or moving closer to family.
Is there a reverse mortgage for higher-value homes?
HECMs are capped at a maximum claim amount that FHA sets each year. Proprietary, or jumbo, reverse mortgages from private lenders can be an option for higher-value homes, and some allow condos that are not FHA-approved. Terms vary by lender.