What Is a Reverse Mortgage? How It Works, Requirements & Costs

A reverse mortgage lets homeowners age 62 or older turn part of their home equity into cash without selling the home or taking on a monthly mortgage payment. It can be a useful retirement tool, but it is not right for everyone. This guide explains what a reverse mortgage is, how it works, who qualifies in 2026, what it costs, and the trade-offs to weigh before you commit.

• A reverse mortgage converts home equity into cash for homeowners age 62+, with no required monthly mortgage payment as long as you meet the loan terms.
• The most common type is the FHA-insured Home Equity Conversion Mortgage (HECM); the 2026 HECM lending limit is $1,249,125.
• You still must pay property taxes, homeowners insurance, and maintenance, and keep the home as your primary residence, or the loan can become due.
• The loan is repaid when the last borrower sells, permanently moves out, or passes away, usually from the sale of the home.
• HUD-approved counseling is required before you can apply for a HECM.
• Alternatives such as a HELOC, a cash-out refinance, or downsizing may cost less, depending on your situation.

What Is a Reverse Mortgage?

A reverse mortgage is a loan that lets an older homeowner borrow against the equity they have built in their home and receive that money as cash. Unlike a traditional “forward” mortgage, where you make monthly payments to a lender and your balance shrinks over time, a reverse mortgage works in the opposite direction: the lender pays you, and the loan balance grows over time as interest and fees are added.

You keep the title to your home. The balance does not have to be repaid until the last borrower sells the home, moves out permanently, or passes away. At that point, the loan is typically paid off from the proceeds of selling the house, and any remaining equity goes to you or your heirs.

How Does a Reverse Mortgage Work?

With a reverse mortgage, you tap a portion of your equity and choose how to receive the money. The amount you can borrow, called the principal limit, depends on three main factors: the age of the youngest borrower, your home’s value (up to the lending limit), and current interest rates. Older borrowers and lower expected rates generally unlock more money.

HECM borrowers can usually take the funds as a lump sum, a line of credit, fixed monthly payments, or a combination. With a HECM, you can generally access up to 60% of the available principal in the first year, with some exceptions. Because no monthly payment is required, interest is added to your balance each month, which is why the amount you owe rises over time and your remaining equity declines.

What Are the Types of Reverse Mortgages?

There are three main types, and they serve different needs.

• Home Equity Conversion Mortgage (HECM): The FHA-insured option and the most common reverse mortgage. It is available through FHA-approved lenders to homeowners 62+, with federal protections such as the rule that you and your heirs never owe more than the home is worth when it is sold.
• Proprietary (or “jumbo”) reverse mortgage: A private loan not insured by the FHA, designed for higher-value homes that exceed the HECM limit. Some lenders offer these to borrowers as young as 55, and loan amounts can reach into the millions.
• Single-purpose reverse mortgage: Offered by some state and local governments and nonprofits for one specific use, such as home repairs or property taxes. These usually cost the least but are not available everywhere.

What Are the Requirements for a Reverse Mortgage in 2026?

To qualify for a HECM reverse mortgage, you generally need to meet the following requirements:

• Age: The youngest borrower must be at least 62. A younger spouse may be listed as an eligible non-borrowing spouse, which can reduce the amount you can borrow but protects their right to stay in the home.
• Equity: You must own your home outright or have substantial equity, enough to pay off any existing mortgage at closing with the reverse mortgage proceeds.
• Primary residence: The home must be your principal residence, and you must live there most of the year.
• Property type: Single-family homes, HUD-approved condos, certain manufactured homes, and 2-to-4-unit properties (with one unit owner-occupied) can qualify.
• Financial assessment: Lenders review your income, credit history, and expenses to confirm you can keep up with property taxes, insurance, and upkeep. There is no minimum credit score, but unresolved federal debt can disqualify you.
• Counseling: You must complete a session with a HUD-approved counselor before applying.

How Much Does a Reverse Mortgage Cost?

Reverse mortgages carry several costs, and they tend to be higher than a typical home loan. For a HECM, expect an upfront FHA mortgage insurance premium (MIP) plus an annual MIP charged on the balance, an origination fee, a HUD-approved counseling fee, an appraisal, and standard third-party closing costs. Many of these can be financed into the loan, but doing so reduces the cash available to you and increases the balance that accrues interest.

Because the balance grows over time rather than shrinking, the total cost of a reverse mortgage can be significant, especially if you stay in the home for many years. Running the numbers with a mortgage calculator and comparing several lenders helps you see the real long-term picture before you decide.

Reverse Mortgage vs. Other Ways to Tap Equity

A reverse mortgage is one of several ways to access the equity in your home. Here is how it compares with two common alternatives.

If you can comfortably make a monthly payment, a home equity line of credit (HELOC) or a cash-out refinance may cost less over time. If your priority is eliminating a monthly payment and staying in your home, a reverse mortgage may fit better. A refinance specialist can help you compare the options side by side.

Pros and Cons of a Reverse Mortgage

Like any major financial decision, a reverse mortgage has clear benefits and real trade-offs.

Potential advantages: no required monthly mortgage payment, tax-free loan proceeds (consult a tax advisor), the ability to stay in your home, flexible payout options, and FHA protections on a HECM that cap what you or your heirs owe at the home’s value when sold.

Potential drawbacks: upfront and ongoing costs can be high, your equity shrinks over time, the growing balance leaves less for heirs, and you can still lose the home if you fall behind on property taxes, insurance, or maintenance. A reverse mortgage can also affect needs-based benefits, so it is worth reviewing with a financial professional.

Who Should Consider a Reverse Mortgage?

A reverse mortgage tends to make the most sense for homeowners who are 62 or older, plan to stay in their home for the long term, have significant equity, and want to improve retirement cash flow without a monthly payment. It is usually a weaker fit if you expect to move soon, want to preserve the home as an inheritance, or could meet your needs with a lower-cost option. Talking through your goals with a knowledgeable loan officer, alongside a HUD-approved counselor, is the best way to decide.