To most homeowners over the age of 62, home is what one's possessions are to most of life. Homeowners aged 62 or more may use reverse mortgages to access a portion of the equity in their home without giving up or selling the home. In this kind of mortgage, as opposed to the borrower paying the lender in traditional mortgage, the lender pays the borrower. The payments can be provided to borrowers as a lump sum one-time payment, monthly payment, or line of credit to spend at pleasure.
While reverse mortgages have reached a more mainstream level of retirement planning, they are still a complex financial instrument, with both positive and negative points to weigh. It's beneficial toknow the way a reverse mortgage functions before deciding if this is going to be part of your long-term plan.
The Features of Reverse Mortgages
There Are No Payments Every Month - Once you have started the reverse mortgage process, you no longer need to make monthly payments. Only when you are selling your home, you are leaving the home for good, or you have died is the loan repaid.
You Are Still The Owner - You are still the owner of the property in question, if you continue to pay the property taxes and insurance and maintenance on the house.
How Much Are You Eligible to Borrow?
The amount of a loan will depend on:- Your home's value in the current market
- Your age (the older you are, the greater the potential benefit)
- The prevailing interest rates
- Federal borrowing caps (e.g., the current HECM 2025 limit = $1,149,825)
This ability to be flexible explains the popularity of a reverse mortgage among elderly homeowners who are in the situation of being "house rich and cash poor" — owning a lot of equity but not much retirement income.
Common Uses of Reverse Mortgage Proceeds
The tax-free reverse mortgage proceeds can be spent almost anywhere. Homeowners utilize reverse mortgages for:
- Supplementing retirement income to pay for everyday expenses
- Paying for medical expenses or long-term care
- Complete home remodeling or mobility modifications
- Pay down or consolidate current obligations
Because it's your equity we're borrowing, you have control of where the money was spent.
Estimating Your Payout
The check drawn will depend on how much fluctuates in your situation. Use the following web-based estimators provided by agencies like AARP or the NMLS to estimate payouts, providing:
- Home value (e.g., in the $300,000 - $500,000 range)
- Age of the borrower (at least 62, but the payment depends on age)
- Rate of interest (approximately 6.5% in 2025)
- Type of loan (HECM, proprietary, or single-purpose)
Home Value: $500,000
Age: 70
Interest Rate: 6.5%
Payback expected: $1,800 - $2,500 a month or as much as $250,000 in lump sums.
Note: Actual numbers depend on lender, the loan and fees, and the state of the market.
Pros and Cons of Reverse Mortgages
As with any economic commodity, reverse mortgages carry enormous positives - negatives.
Pros:
- No monthly mortgage payments to pay
- Tax-free access to cash
- You still retain ownership of the house and take title in your name
- "non-recourse loan": heirs will never pay more than house is worth, regardless of size mortgage
Disadvantages:
- Up-front fees and costs (origination fees, mortgage insurance premiums, closing costs) are high
- Interest is paid and compounded throughout term of the loan, so your initial payment is higherBorrowed home equity, when inherited, is less importantBorrowers will need to remain current on
- property taxes and insurance, maintain the house from deterioration, or otherwise default on loan
When and how the loan is paid back?
There are actually only a few instances where the reverse mortgage matures:
- When the borrower (or surviving non-borrowing spouse) passes away.
- When the owner sells the property.
- When the owner has vacated the home for over 12 consecutive full months (i.e. to a nursing home).
- If the home isn't paid for in property taxes, insurance, or kept up.
- When it comes time to pay back, heirs usually have 3 choices:
- Sell the house and use the money to pay back the mortgage.
- Refinance it as a traditional mortgage in order to retain the property.
- Walk away and let the lender sell the house (heirs would retain the equity above and beyond what is owed).
Reverse Mortgage Trends in 2025
The reverse mortgage business continues to grow:
- Higher Interest Rates: The higher the rate, the smaller the amount of money you will be loaned, and timing is everything when refinancing.
- Tighter Counseling Laws: HUD recently enforced that required counseling be done before approval of any reverse mortgage so that the borrower has an informed decision regarding the product.
- More Technology: Fintech firms are accelerating application and approval processes making it easier to apply for a reverse mortgage to shop online.
Final Thoughts
A reverse mortgage might be a great idea for seniors who wish to supplement their retirement and continue to stay in their home. It's some peace of mind and freedom, too. That being said, it is not a decision to be taken lightly; they are very expensive, interest accumulates, and it will consume part of your inheritance, so it is not for everybody.
Prior to getting into a reverse mortgage, it would be wise to:
- Speak with an HUD approved counselor.
- Compare costs and choices with several lenders.
- Talk with family members about how this will affect your family.
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