What Is a Reverse Mortgage? A Plain-Language Explanation

A reverse mortgage is a home-equity loan that pays you instead of you paying it. You stay on title, keep living in the house, and the lender collects nothing each month. The loan comes due when the last borrower moves out for more than 12 months, sells, or dies; the balance gets paid off out of the home's sale or the heirs' refinance. It is a federally insured product for homeowners 62 and older in its main form (the HECM, run by HUD), and a private-lender product called a jumbo or proprietary reverse mortgage where the age floor is usually 55 (Consumer Financial Protection Bureau, Reverse Mortgages, 2024).

Last reviewed 2026-05-20

What is a reverse mortgage, in short?

A traditional mortgage runs one direction: you borrow a lump sum to buy the house, then pay the lender monthly until the balance is gone. A reverse mortgage runs the other direction. The lender pays you as a lump sum, a monthly check, a line of credit, or a combination, and the balance grows over time as interest, mortgage insurance premiums, and any servicing fees accrue. You are still the owner. You still pay property taxes, homeowner's insurance, HOA dues, and basic upkeep. Fail to pay those and the loan can be called due.

The balance becomes payable at one of four "maturity events": the last borrower dies; the last borrower moves out of the home for more than 12 consecutive months; the home is sold; or the borrower defaults on the property-charge obligations (HUD Handbook 4000.1, Section II.B.9). The home is then typically sold, the loan balance paid off from the proceeds, and any remaining equity goes to the borrower or the heirs. The federal HECM program is non-recourse: neither the borrower nor the heirs ever owe more than the home is worth at sale, even if the balance has grown past the value (24 CFR 206.125).

How does a reverse mortgage work?

Three numbers decide how much you can borrow: your age (or the youngest borrower's age, if there are two), the home's appraised value, and the expected interest rate at the time you take the loan. HUD publishes a Principal Limit Factor table that maps those three inputs to a percentage — the share of the home's value the lender will lend against. Older borrowers and lower expected rates produce higher PLFs. A 62-year-old at today's rates lands near 40% of the home's value; an 80-year-old, closer to 55%.

The home value used in the math is capped. For HECM loans with FHA case numbers issued on or after January 1, 2026, the maximum claim amount is $1,249,125 (HUD Mortgagee Letter 2025-22). For 2025 case numbers, the cap is $1,209,750. Above the cap, the math still uses the cap, so a $2M home and a $1.4M home produce roughly the same HECM principal limit. That ceiling is the main reason jumbo programs exist.

The expected rate also has a floor. HUD's PLF tables will not calculate a principal limit using an expected rate below 3.0%, even if market rates drop further (HUD Mortgagee Letter 2017-12). With the 10-year Constant Maturity Treasury at 4.59% as of May 15, 2026 (Federal Reserve H.15 release), the floor is currently not binding.

A worked example helps anchor the math. A 70-year-old borrower with a home appraised at $500,000 and an expected rate of 6.5% lands at a Principal Limit Factor of roughly 0.418 under the current HUD table, producing a principal limit near $209,000. Subtract about $10,000 in upfront FHA mortgage insurance premium, a $6,000 capped origination fee, and roughly $3,500 in counseling, appraisal, title, and recording costs, and the net available to the borrower at closing is closer to $189,500. Choose a line of credit, and the unused portion of that net amount grows at the loan's note rate plus the 0.5% annual insurance premium for as long as the line stays open. Choose a lump sum at a fixed rate, and the full balance starts accruing interest the day after closing. Same starting math, different cash-flow shape. The precise PLF a lender quotes will differ by a fraction of a percentage point depending on the published expected-rate index at the moment of closing and any margin the lender adds (HUD Mortgagee Letter 2017-12; HUD PLF Tables, current effective version).

Once the principal limit is set, you pick the payout. The four standard options under a HECM (HUD Handbook 4000.1, Section II.B.10):

• Lump sum. A single fixed-rate disbursement at closing. The simplest path; also the one where the full balance starts accruing interest immediately. Locks the rate.
• Line of credit. Adjustable-rate, draw what you want when you want, and the unused portion grows at the same rate the loan accrues interest. This growth feature is a distinguishing mechanic of the HECM line of credit and does not exist on any HELOC.
• Tenure. A fixed monthly payment for as long as at least one borrower lives in the home.
• Term. A fixed monthly payment for a set number of years you choose.

Combinations are allowed; many borrowers take a partial line of credit plus a small monthly disbursement. The line-of-credit growth is why some financial planners describe the HECM LOC as a standby resource: opened early, drawn later, the available credit compounds at the loan rate the whole time (CFPB, Reverse Mortgages, 2024).

Three things accrue to the balance each month: interest, an ongoing FHA mortgage insurance premium of 0.5% annualized on the outstanding balance, and any lender servicing fee. None come out of your pocket; all grow the balance.

What are the three types of reverse mortgages?

There are three live reverse mortgage products in the U.S. market, plus a fourth historical category that is mostly extinct.

HECM (Home Equity Conversion Mortgage) is the federal program, insured by the FHA and administered under HUD's rules. It accounts for the overwhelming majority of reverse mortgages originated each year. Age floor 62. Subject to the $1,249,125 limit above. The HECM is what most people mean when they say "reverse mortgage."

HECM for Purchase (H4P) is the same product used differently: instead of borrowing against a home you already own, you use a HECM to buy a home, typically a downsized or relocation property. You bring a down payment, the HECM funds the rest, and no monthly payment is due.

Proprietary / jumbo reverse mortgages are private-lender products outside the FHA system. The three programs currently originated in volume are HomeSafe from Finance of America (NMLS #2285), Platinum Preserve from Longbridge Financial (NMLS #957935), and SecureEquity+ from Mutual of Omaha Mortgage, Inc. (NMLS #1025894), the reverse-mortgage division of Mutual of Omaha. Age floor is 55, with state exceptions (Massachusetts, New York, and Washington raise it to 60 on at least one program; North Carolina and Texas hold the line at 62 for HomeSafe). The published loan cap is up to $4 million, a cap on the loan, not on the home's appraised value, so an $8M home is eligible. Jumbo programs carry no FHA mortgage insurance premium, which lowers ongoing costs, but their rates and program-specific terms are not federally standardized; actual proceeds come from a lender quote. Each program publishes its own parameter sheet with a state-by-state availability table, a property-type table, and a margin-and-fee schedule; the parameter sheets are the source documents the /programs pages reproduce. Because the three jumbo programs are not interchangeable — HomeSafe's product line includes a Second-lien option that Platinum Preserve and SecureEquity+ do not, and SecureEquity+ has a higher published cap on certain property types — a borrower whose home value sits well above the HECM ceiling typically gets quotes from all three before deciding.

The fourth historical category is the single-purpose reverse mortgage: small, narrowly scoped loans run by some state and local agencies for a single use such as property-tax deferral or home repair. Inexpensive but rare and restricted by geography. The Equity Edge program was discontinued in 2022 after Reverse Mortgage Funding's Chapter 11 filing and is no longer originated.

For a deeper read on the differences, see the three-types guide and the jumbo pillar.

What does a reverse mortgage cost?

Upfront costs on a HECM run 3% to 6% of the home's value, depending on the lender and the state. The components (HUD Handbook 4000.1, Section II.B.7):

• Origination fee. Capped by HUD at 2% of the first $200,000 of home value plus 1% above that, to a maximum of $6,000.
• Initial FHA mortgage insurance premium. 2% of the maximum claim amount. This is the largest single upfront cost on most HECMs.
• HUD-approved counseling fee. Usually $125 to $200. Required before the application can move forward; some agencies waive it for low-income borrowers.
• Appraisal. $500 to $900, sometimes higher for unusual properties.
• Title insurance, recording fees, and other standard closing costs. Vary by state.

Most upfront costs can be financed into the loan rather than paid at closing. Convenient, and expensive: financed costs accrue interest for the life of the loan.

Ongoing costs accrue to the balance, not your bank account: interest at the note rate, the 0.5% annual FHA mortgage insurance premium, and any lender servicing fee. Property taxes, homeowner's insurance, HOA dues, and maintenance remain your monthly responsibility.

Jumbo programs skip the FHA mortgage insurance premium (both the 2% upfront and 0.5% ongoing), which is why a borrower with a high-value home sometimes finds the jumbo math more favorable. The trade is no federal non-recourse protection at the loan level; the lender's contract governs.

When does a reverse mortgage come due?

The loan comes due on an event, not on a schedule. Four events trigger maturity (HUD Handbook 4000.1, Section II.B.9):

1. The last surviving borrower dies. If two borrowers signed, the loan continues for the survivor and matures on the second death.
2. The last surviving borrower moves out for more than 12 consecutive months. Move into assisted living or a nursing facility, and the clock starts. A short hospital stay does not trigger it; an extended move does.
3. The home is sold. The sale closes, the loan is paid off from proceeds, the rest goes to the borrower.
4. The borrower defaults on a property charge — failing to pay property taxes, keep insurance current, pay HOA dues, or maintain the home to lender-acceptable condition. Property-charge default is the most common reason a reverse mortgage is called due before death or sale.

For HECM cases originated after the 2014 reform, an eligible non-borrowing spouse (a spouse married to the borrower at closing but not on the loan, typically because they were under 62) can in many cases remain in the home after the borrower's death without the loan being called due, if they meet HUD's deferral conditions (HUD Mortgagee Letter 2015-15). Pre-2014 protections are narrower. The rules are case-specific; a HUD-approved counselor can walk through how they apply.

What happens to your heirs?

When the loan matures, the heirs get a window: six months to act, with two 90-day extensions available on good-faith effort, for up to 12 months total (24 CFR 206.125). During that window, they have three options:

• Sell the home. The most common path. The loan balance is paid out of sale proceeds; any remaining equity goes to the estate.
• Keep the home by paying the lesser of the loan balance or 95% of appraised value. If the loan balance exceeds the home's value, the heirs can buy at 95% of current appraised value and the FHA insurance fund covers the gap.
• Sign a deed in lieu of foreclosure. Walk away without further obligation. The lender takes the property; FHA insurance covers any shortfall.

Because the HECM is non-recourse, heirs never owe more than the home is worth. The estate's and heirs' personal assets are not at risk to repay a balance that grew past the house (24 CFR 206.125). This is one of the load-bearing consumer protections of the federal program.

Detailed scenarios, including how the timeline runs, what happens during the 6-month window, and the surviving-spouse rules, are covered in the heirs and inheritance guide and the death-of-borrower guide.

What are the downsides of a reverse mortgage?

We name these upfront so a skeptical reader doesn't have to scroll past sales paragraphs to reach them.

Equity depletion. A reverse mortgage trades home equity for cash. The loan balance grows every month with interest and insurance; equity available to you, your spouse, or your heirs shrinks accordingly. Over a 15-year loan life at current rates, the balance commonly consumes the majority of starting equity.

Compounding interest. Because nothing is paid monthly, interest accrues on a growing balance. Unlike a forward mortgage where principal payments steadily shrink the loan, a reverse mortgage's balance only goes one direction until maturity.

The property-charge obligation. Property taxes, insurance, and maintenance remain your responsibility. Falling behind on them is the most common cause of pre-death loan default. Borrowers on tight fixed incomes who took a reverse mortgage to cover a cash gap can find themselves in default on the very taxes the loan was supposed to ease.

Fuller treatment, with pros stated alongside, is in the downsides guide and pros and cons guide.

Should you get one?

A reverse mortgage fits when the math and household situation line up: a paid-off or low-mortgage home, a plan to stay for many years, a clear use for the money, and a budget that can carry taxes and insurance without strain. It is a poor fit when the household is likely to move within a few years (upfront costs do not amortize over a short hold), when the home is the intended inheritance for heirs who could not refinance it, or when property-charge obligations are themselves the budget pressure.

Three concrete scenarios where the math tends to line up. First: a couple in their early 70s with a paid-off home and a retirement-income shortfall of a few hundred dollars a month. A HECM tenure payment for as long as either spouse lives in the home replaces the shortfall, and the line-of-credit growth feature gives an emergency reserve that compounds against the loan rate even when untouched. Second: a homeowner in their late 60s carrying a $90,000 forward mortgage with eight years left on a 4% note. Refinancing into a HECM retires the forward mortgage at closing, eliminates the monthly principal-and-interest payment that was straining the budget, and converts the remaining equity into either a standby line of credit or supplemental monthly cash. The trade is real — interest now accrues on a larger balance — but the immediate cash-flow relief is the point. Third: a long-time owner with a paid-off home, a retirement-income gap, and no heirs who plan to keep the home. The estate-depletion concern that often weighs against a reverse mortgage simply does not apply; the home will be sold whether the loan is on it or not, and the proceeds distributed against the same will. In that case, using the equity during life rather than passing it on intact is a deliberate choice that the product supports cleanly.

The federal HECM program requires meeting with a HUD-approved counselor before applying. The session runs about an hour by phone, is independent of any lender, and walks through whether the product fits, what payout option matches your cash flow, and what alternatives exist. The counselor list is on HUD's website.

For a structured framework on the fit question, see the is-it-a-good-idea guide and counseling guide.

Estimate your number

The principal-limit math depends on three inputs: your age, home value, and expected rate. A calculator gets you within a few thousand dollars of what a lender would quote. Useful for thinking, not for signing.

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