Reverse Mortgages Explained: Who They Help and Who Should Avoid Them
A reverse mortgage flips the usual homeownership math on its head. Instead of you paying the lender every month, the lender pays you, using your home's equity as the source, while you continue living in the house. It's a genuinely useful tool for the right situation and a genuinely poor fit for others, which is why understanding how it actually works matters more than the sales pitch either way.
The standard version is called a HECM, a Home Equity Conversion Mortgage, insured by the FHA and available only through FHA-approved lenders. To qualify, you generally need to be 62 or older, own your home outright or have significant equity in it, and be able to demonstrate you can keep up with ongoing property taxes, homeowners insurance, and basic home maintenance, since failing to do so is one of the main ways a reverse mortgage can go wrong.
For 2026, the FHA lending limit on a HECM is $1,249,125, the maximum home value the calculation can be based on regardless of whether your home is worth more. How much you can actually borrow depends on your age (older borrowers generally qualify for more), current interest rates, and your home's appraised value up to that cap.
You can typically receive the funds in a few different ways: a lump sum at closing, a line of credit you draw from as needed, fixed monthly payments for as long as you live in the home, or some combination of these. The line of credit option has a feature that surprises a lot of people, the unused portion actually grows over time, at a rate equal to your loan's interest rate plus the FHA's mortgage insurance renewal rate, currently 0.50% annually. That means the amount available to you can increase even if you never draw on it, which is a meaningfully different structure than a standard HELOC where an unused credit line just sits flat.
Here's the part that requires the most honest attention: this is not free money, and the loan balance grows rather than shrinks over time. Interest and mortgage insurance premiums accrue and get added to what you owe, since you're not making monthly payments to reduce the balance the way you would with a traditional mortgage. Over years, that accumulated interest and insurance can meaningfully reduce the equity that would otherwise pass to your heirs.
The loan generally becomes due and payable when one of a few specific things happens: the last surviving borrower sells the home, permanently moves out (commonly defined as being out of the home for more than 12 consecutive months, including an extended care facility stay), or passes away. At that point, the home is typically sold to repay the loan, and any remaining equity after the loan balance goes to the borrower or their heirs. Because it's FHA-insured, neither you nor your heirs will ever owe more than the home is worth at the time of repayment, even if the loan balance has grown to exceed the home's value.
A required step that's genuinely there to protect you, not just a formality: HUD-approved counseling before you can close on a HECM. This independent counseling session is designed to make sure you fully understand the loan's mechanics, costs, and long-term implications before committing, separate from anything a lender's sales team tells you.
Who this genuinely tends to help: retirees who are house-rich but cash-poor, want to stay in their long-term home rather than downsize, and need supplemental income or a financial cushion without taking on a traditional monthly payment. Who it tends to be a poor fit for: anyone planning to move within a few years (the upfront costs make a short hold period expensive relative to the benefit), anyone who can't reliably keep up with property taxes and insurance going forward (a genuine risk of default and foreclosure despite the "no monthly payment" framing), and anyone primarily focused on maximizing what they'll leave to heirs, since the growing loan balance directly reduces that inheritance over time.
There's also a purchase option worth knowing about if you're considering downsizing rather than staying put, a HECM for Purchase lets you buy a new primary residence using reverse mortgage proceeds combined with your own funds to cover the difference, without taking on a traditional monthly mortgage payment on the new home.
Before signing anything, get the actual numbers in writing, current interest rate, all closing costs, and the specific mortgage insurance premium structure, and treat the required HUD counseling session as a real opportunity to ask hard questions rather than a box to check on the way to closing.
