Programme
Reverse Mortgage
Equity turned into cash at 62 or over, on a loan whose balance rises instead of falling.
A Home Equity Conversion Mortgage is the FHA-insured reverse mortgage, and it is the only one most borrowers will encounter. It lets an owner of 62 or over draw on the equity in their home without a monthly mortgage payment. What replaces the payment is compounding: interest and mortgage insurance are added to the balance every month, so the debt grows and the equity shrinks for as long as the loan is outstanding. It is a legitimate and sometimes excellent tool. It is also the product on this site with the most ways to go wrong, so this page puts the risks before the features.
- Every borrower must be 62 or over
- HUD-approved counselling is required
- No monthly principal-and-interest payment
- Non-recourse: capped at the home's value
Floor four
What it gives you
It converts equity into cash without a monthly payment
For an owner who is asset-rich and income-poor, and who intends to stay in the home for a long time, that can be the difference between staying and selling. Proceeds may be taken as a lump sum, a line of credit, monthly tenure or term payments, or a combination.
It is non-recourse, and that protection is real
When the loan is repaid, neither you nor your estate can owe more than the home is worth at that point. If the balance has grown past the value of the house, FHA insurance absorbs the difference. That is what the mortgage insurance premium is buying.
The line-of-credit option grows unused
On a HECM line of credit, the undrawn portion of the available principal limit increases over time at the same rate the balance would accrue. Used as a standby facility rather than drawn at once, it is a very different product from a lump sum.
Counselling is mandatory before an application can be taken
You must speak to an independent HUD-approved HECM counsellor first. It is a consumer protection, it is not a formality, and it is the right place to ask every awkward question before a lender is involved.
Floor three
What this programme costs you
Every programme buys you something by charging you something else. This is the half a brochure leaves out, and it is the half that decides whether the programme is right for you.
- Trade-off 01
The balance grows, and it grows on itself
Interest and the ongoing mortgage insurance premium are added to the loan each month, and next month's interest is charged on that larger balance. Nobody is making a payment, so nothing offsets it. Over ten or fifteen years the compounding is substantial, and the equity available to you if you sell — or to your heirs when you do not — falls accordingly. In a flat housing market it can reach zero. That is not a defect; it is how the product works, and it must be understood before signing rather than after.
- Trade-off 02
It can still be foreclosed, and the usual cause is a tax bill
There is no mortgage payment, but the loan becomes due and payable if you fail to pay property taxes or hazard insurance, if you let the home fall into disrepair, or if it stops being your principal residence. Moving into care for more than twelve consecutive months triggers it. The most common way people lose a home to a reverse mortgage is not the loan balance — it is an unpaid tax or insurance bill, which is exactly why lenders must assess your ability to meet those costs and may require a set-aside.
- Trade-off 03
The up-front cost is large relative to a short stay
The initial mortgage insurance premium is 2% of the maximum claim amount, and on top of that sit origination, title and closing costs. Spread over twenty years in the home that is defensible. Spread over three years before a move into care, it is a very expensive way to have borrowed money, and the decision cannot be undone once the costs are paid.
- Trade-off 04
Anyone living there who is not on the loan is exposed
A spouse under 62 who is not a borrower, an adult child, a partner — none of them have a right to remain when the last borrower dies or moves out, unless the protections for an Eligible Non-Borrowing Spouse were correctly established at closing and their conditions are met afterwards. This is the failure mode that has caused the most harm historically, and it is entirely avoidable by getting the paperwork right at the start.
Floor two
The published rules, and where they come from
These are rules, not prices. This site publishes no rates, so what follows is the part of the programme that is written down somewhere a third party can check.
| Rule | What it says | Source |
|---|---|---|
| Age | Every borrower must be 62 or older at closing. A younger spouse may be recorded as an Eligible Non-Borrowing Spouse but is not a borrower. | 12 U.S.C. 1715z-20(b); 24 CFR 206.33 |
| Counselling | The borrower must receive counselling from an independent HUD-approved HECM counsellor before a lender may take an application. | 24 CFR 206.41 |
| What the balance does | Interest and the ongoing mortgage insurance premium are added to the outstanding balance each month. The amount owed therefore RISES over time and the remaining equity falls. | 24 CFR Part 206 (HECM programme) |
| Mortgage insurance premium | An initial premium of 2.00% of the maximum claim amount, plus an ongoing premium of 0.50% a year charged on the outstanding balance. | HUD Mortgagee Letter 2017-12 |
| What makes the loan due | Failure to pay property taxes or hazard insurance, failure to keep the property in repair, or the property ceasing to be the borrower's principal residence — including an absence of more than 12 consecutive months. Death of the last surviving borrower also makes it due. | 24 CFR 206.27(c) |
| Non-recourse | The borrower and the estate are never liable for more than the value of the property at the time the loan is repaid. FHA insurance covers any shortfall. | 24 CFR 206.27(b) |
| Financial assessment | The lender must assess the borrower's credit history and ability to meet property charges, and may be required to establish a Life Expectancy Set-Aside from the proceeds to pay taxes and insurance. | HUD Mortgagee Letter 2014-21; 24 CFR 206.205 |
| Non-borrowing spouse | A spouse under 62 who is identified at closing as an Eligible Non-Borrowing Spouse may be able to defer the loan becoming due after the borrower's death, provided the conditions are met continuously. | HUD Mortgagee Letter 2021-11 |
Floor one
Who it fits
The usual guidelines. Every one of them is a starting point that an underwriter reads against the whole file, so treat a line you miss as a conversation rather than a closed door.
- Every borrower on the loan must be 62 or older
- The home must be your principal residence
- Substantial equity — the amount available depends on age, the interest rate and the property value
- Completion of counselling with an independent HUD-approved HECM counsellor
- A financial assessment of your credit history and your capacity to pay taxes, insurance and upkeep
- Any existing mortgage must be paid off at closing, usually out of the HECM proceeds
Ground floor
How it goes, top to bottom
Counselling, before anything else
An independent HUD-approved counsellor walks through the mechanics, the alternatives and the obligations. No application can be taken until the certificate is issued, and this is the cheapest hour in the process.
Work out how long you intend to stay
The costs are front-loaded and the compounding is back-loaded. A long stay makes the product work; a short one makes it expensive. Be honest about health and about family plans.
The financial assessment
The lender reviews your credit history and residual income to judge whether you can keep up taxes, insurance and maintenance. If the answer is marginal, a Life Expectancy Set-Aside may be carved out of the proceeds to pay them — which reduces what you receive but protects the home.
Appraisal and the principal limit
The appraised value, the age of the youngest borrower and the expected rate determine the maximum claim amount and the principal limit — the amount actually available to you.
Closing, then keep the obligations
After closing, the loan stays in good standing only while taxes and insurance are paid, the home is maintained, and it remains your principal residence. Set those up as standing commitments, not as things to remember.
A HECM against the two ordinary ways to reach home equity
| Feature | HECM reverse mortgage | Cash-out refinance | Home equity second |
|---|---|---|---|
| Age requirement | 62 or over, every borrower | None | None |
| Monthly payment | None required | Principal and interest every month | Principal and interest every month |
| What the balance does | Rises — interest and MIP are added to it | Falls on schedule | Falls on schedule |
| Underwriting | A financial assessment of your ability to pay taxes and insurance | Full income and credit underwriting | Full income and credit underwriting |
| What can make it due early | Unpaid taxes or insurance, disrepair, or ceasing to occupy the home | Missing payments | Missing payments |
| Liability if the balance exceeds the value | None — the loan is non-recourse and FHA covers the shortfall | Depends on state law | Depends on state law |
| Cost to start | 2% initial MIP on the maximum claim amount, plus origination and closing costs | Ordinary refinance closing costs | Usually the lowest of the three |
This table scrolls sideways on a narrow screen.
Questions this raises
Can the bank take my house?
Not because of the loan balance, and not while you meet the obligations. A HECM becomes due and payable if you stop paying property taxes or hazard insurance, if you let the property deteriorate, or if it stops being your principal residence — which includes being away from it for more than twelve consecutive months. Those are the routes to foreclosure, and unpaid property charges are by far the most common. If your ability to meet them is marginal, a set-aside from the proceeds to pay them is a protection worth asking for.
Will my children inherit anything?
They inherit whatever equity is left, which is the value of the home minus the balance that has accumulated. Because the balance grows and the equity shrinks, the longer the loan runs the less there is. They can repay the loan and keep the house, sell it and keep the difference, or hand it back and owe nothing — the loan is non-recourse, so the estate is never liable for a shortfall. What they cannot do is assume it.
Why does this page point at an amortisation schedule?
Because a reverse mortgage is an ordinary amortisation run backwards, and seeing it forwards is the clearest way to understand it. On a normal loan the payment covers the interest and chips at the principal, so the balance falls. On a HECM nobody makes that payment, so the interest and the insurance premium are added to the balance instead and next month's interest is charged on the larger figure. Look at how a forward schedule compounds, then invert it.
Do I still own the home?
Yes. The title stays in your name and the lender holds a mortgage against it, exactly as with any other loan. What changes is that you have obligations attached to that title — taxes, insurance, maintenance and occupancy — and breaching them makes the loan due. Ownership is not the risk; the property charges are.
Put your own numbers through it
Where does each payment go? The amortisation page prints the rule it followed beside the answer, and the address bar carries your inputs so the link you send is the answer you saw.
Or read every programme side by side.