Your home spent 30 years working for you. A reverse mortgage lets it keep working, converting the equity you've built into tax-free funds or a line of credit you can draw from in retirement, with no required monthly mortgage payment. You keep ownership of your home and remain responsible for property taxes, homeowner's insurance, and basic upkeep.
Most people have heard the term but aren't sure exactly how it works. Others have heard things about it that aren't quite accurate. This guide covers the mechanics, clearly and honestly.
The Basic Concept
A reverse mortgage is a loan against the equity in your home. Instead of making payments to a lender, the lender makes payments to you, or makes funds available for you to draw when needed. The loan balance grows over time rather than shrinking, and it gets repaid when you sell the home, move out permanently, or pass away.
You remain the owner of your home throughout. You're responsible for property taxes, homeowner's insurance, and basic maintenance, the same obligations you have today.
The Most Common Type: The HECM
Most reverse mortgages are called HECMs, Home Equity Conversion Mortgages. They're insured by the Federal Housing Administration (FHA) and governed by HUD guidelines, which means they come with specific consumer protections built in.
Who qualifies?
- You (and any co-borrower) must be at least 62 years old
- The home must be your primary residence
- You must have sufficient equity, typically at least 50%, though this varies
- You must complete a HUD-approved counseling session before closing
- You must be able to demonstrate the ability to pay taxes and insurance (a financial assessment)
How Much Can You Access?
The amount you can borrow depends on three factors: your age (or the age of the youngest borrower), current interest rates, and the appraised value of your home, up to the FHA lending limit of $1,249,125 in 2026 (NRMLA).
Generally speaking, the older you are and the lower the interest rate, the more you can access. A 75-year-old with a $700,000 home and no existing mortgage might have access to $350,000–$420,000 in equity, depending on current rates. (For illustration only; actual amounts depend on age, rates, and appraised value.)
Important: If you have an existing mortgage, it must be paid off first using the reverse mortgage proceeds. The remaining funds are yours to use however you choose.
How You Can Receive the Money
A HECM gives you flexibility in how you access your equity. You can choose:
- Line of credit, Draw funds when you need them. The unused portion grows over time, meaning the line of credit increases even if home values don't.
- Monthly payments, A set amount each month for a fixed term, or for as long as you live in the home (tenure payments).
- Lump sum, A one-time fixed disbursement (available only with a fixed-rate HECM).
- Combination, Most borrowers use a combination of a line of credit plus monthly draws.
The HECM Line of Credit: Why It's Unique
The line of credit option is what makes many financial advisors sit up and take notice. Unlike a HELOC, which a bank can freeze or reduce, a HECM line of credit cannot be frozen or canceled by the lender as long as you're living in the home.
More unusually, the unused portion of the line of credit grows over time at the same rate as the loan interest rate. If you establish a $200,000 line of credit today and don't touch it for 10 years, the available credit will have grown substantially, creating a larger pool of funds available later in retirement when you may need them most.
2026 FHA lending limit for HECM loans
When Does the Loan Come Due?
The loan becomes due and payable when the last remaining borrower:
- Sells the home
- Moves out of the home permanently (including moving to a care facility for more than 12 consecutive months)
- Passes away
At that point, you or your heirs have options. The home can be sold, any proceeds above the loan balance go to you or your estate. If heirs want to keep the home, they can pay off the reverse mortgage balance (or 95% of appraised value, whichever is less) and retain ownership. If the loan balance exceeds the home's value at that time, FHA insurance covers the difference, this is the "non-recourse" feature that means you can never owe more than the home is worth (CFPB).
What About Interest?
Interest accrues on the outstanding balance over time. It's not paid monthly, it compounds and is added to the loan balance. This is why the balance grows rather than shrinks. When the loan is eventually repaid, both the original principal and the accumulated interest are settled at that time.
Are the Proceeds Taxable?
No. Funds received from a reverse mortgage are loan proceeds, not income, so they're not subject to federal income tax and won't affect your Social Security or Medicare benefits. (Always consult your tax advisor for your specific situation.)
Is a Reverse Mortgage Right for You?
It depends. A reverse mortgage makes sense in specific circumstances, particularly for homeowners with significant equity who want to eliminate a monthly mortgage payment, supplement retirement income, or create a financial buffer for later in life. It's not the right tool for everyone, and it's worth having a genuine conversation before making any decision.
If you're considering a reverse mortgage, or just want to understand it better, we're happy to walk through your specific situation. No obligation, no pressure.
Where to learn more (independent sources): CFPB, What is a reverse mortgage? · HUD, HECM program · NRMLA consumer site
