The truth about reverse mortgages

Ask ten people what they think about reverse mortgages, and you’ll probably hear ten different answers: Some positive, some skeptical, and a few based more on myth than fact.

It’s understandable. Reverse mortgage loans have been around for decades, but confusion and outdated information often make it hard to know what’s true. The truth is that a reverse mortgage may allow qualified older homeowners to turn part of their home equity into usable funds without giving up ownership or taking on monthly mortgage payments.

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

Still, like any loan, they come with costs, responsibilities, and rules that borrowers should understand before signing on the dotted line. This guide breaks down how reverse mortgages work, clears up common misconceptions, and highlights key truths every potential borrower should know before deciding whether it’s the right fit.

How reverse mortgages work

A reverse mortgage works by allowing eligible older homeowners to convert part of their home equity into loan proceeds without selling their home or taking on new monthly mortgage payments. Instead of paying the lender each month, the borrower receives access to loan funds either as a lump sum, monthly payments, a line of credit, or a mix of these options.

Over time, the loan balance grows as interest and fees are added, and the loan becomes due when the last surviving borrower moves, sells the home, passes away, or fails to meet the loan obligations. At that point, the home is typically sold, and the loan is repaid from the proceeds.

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

There are two main types of reverse mortgage loans, which we’ll explore in more detail towards the end of this article:

• Home Equity Conversion Mortgage (HECM): The most common type, insured by the Federal Housing Administration (FHA) and regulated by the U.S. Department of Housing and Urban Development (HUD). HECMs include consumer protections such as mandatory counseling, borrowing limits, and safeguards for eligible non-borrowing spouses.
• Proprietary reverse mortgages: These are private loans offered by some lenders. They may have different age requirements, loan limits, property rules, or costs. Proprietary products are not FHA-insured and may be suited for higher-value homes or borrowers who do not meet HECM requirements.

→Learn more about reverse mortgages in our guide: What is a reverse mortgage and how does it work?

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Truth #1: A reverse mortgage is a home equity loan—not free money

Reverse mortgages are not a blank check with no obligations. In reality, a reverse mortgage loan is exactly that—a loan. Unlike a regular mortgage, where you make monthly payments to reduce your principal and build equity over time, a reverse mortgage allows eligible homeowners to borrow against their home equity and access funds without making monthly mortgage payments.

Here’s the straightforward truth:

A reverse mortgage may let homeowners draw from their equity through tax-free loan proceeds (not tax advice, please consult a tax professional), not income. You may receive those funds as a lump sum, monthly disbursements, a line of credit, or a combination, depending on your needs and the loan type.

Because there are no required monthly mortgage payments, interest and fees are added to the outstanding loan balance, which increases over time. Home equity loans and home equity lines of credit (HELOCs) usually require monthly payments, unlike reverse mortgages. The loan becomes due when the last borrower either:

• Moves out of the home
• Sells the home
• Passes away
• Otherwise fails to meet the terms of the loan

At that point, the home is usually sold, and the loan is repaid from the sale proceeds. Any remaining equity belongs to you or your heirs. A reverse mortgage may offer flexibility for covering expenses, improving cash flow, or creating a financial buffer, but it is still a long-term borrowing decision. Home equity loans typically have lower upfront costs than reverse mortgages.

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

Not tax advice. Consult a tax professional.

Truth #2: You still own your home

Another persistent myth about reverse mortgages is the idea that the lender “takes your home.” In reality, a reverse mortgage is a type of home loan. When you take out a reverse mortgage, you remain the owner of the home, and your name stays on the title as long as you meet all loan obligations.

The process involves signing a deed or mortgage agreement, just like with other home loans. Mortgage companies originate and service reverse mortgages, ensuring regulatory compliance and guiding borrowers through the loan process. The lender simply has a lien on the property, similar to any traditional mortgage.

With ownership, however, comes responsibilities. Reverse mortgage borrowers must continue to:

• Use the property as their principal residence
• Pay property taxes
• Carry a homeowners insurance policy
• Cover any required HOA fees
• Maintain the home

As long as these obligations are met, the lender does not take possession of the home, and you remain the legal owner for the life of the loan.

This is an important distinction: a reverse mortgage may allow you to access part of your home equity conversion mortgage proceeds while keeping full ownership rights—something many borrowers appreciate when they wish to age in place or avoid selling their home.

Not sure where to start?

Our reverse mortgage specialists will be happy to help you.

Speak to a loan specialist

Truth #3: There are costs and fees involved

A reverse mortgage is a loan, and like any loan, it comes with upfront costs and ongoing expenses. Understanding these fees can help you set realistic expectations and compare a reverse mortgage to other options, such as a home equity loan or HELOC. It’s important to note that interest rates for home equity loans and HELOCs tend to be lower than those for reverse mortgages.

Here are the primary costs associated with a reverse mortgage:

• Closing costs: These may include title insurance, appraisal fees, recording fees, and other third-party charges.
• HUD-required counseling: HECMs and many proprietary reverse mortgages require borrowers to complete a session with a HUD-approved counselor before applying. Counseling helps ensure borrowers understand the loan terms, costs, repayment conditions, and available alternatives.
• Origination fees: This is the lender’s fee for processing the loan and is part of the upfront costs paid to the lender during the mortgage process, in addition to other closing costs and mortgage insurance premiums.
• Mortgage insurance premiums (MIP):
  • For HECMs: The Federal Housing Administration requires both an upfront mortgage insurance premium and an annual premium to insure the loan and provide protections, such as the non-recourse feature.
  • For proprietary loans: These private products are not FHA-insured and have their own fee structures.
• Servicing fees: Some lenders charge a servicing fee to cover the ongoing cost of managing the loan.

These costs vary depending on whether the borrower chooses a HECM through the FHA or a proprietary reverse mortgage offered by a private lender.

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

Truth #4: You have multiple ways to access the funds

A reverse mortgage loan offers several disbursement options, giving borrowers flexibility to use their home equity in a way that aligns with their goals. These options may help cover a wide range of expenses, including home repairs, healthcare expenses, medical bills, or easing financial strain. 

Here are the most common ways borrowers may choose to draw funds:

• Lump sum: A one-time disbursement, often used for larger expenses, such as an existing mortgage or home upgrades.
• Monthly disbursements: Steady, predictable amounts that may supplement income over a set period or for as long as you live in the home (depending on the loan type).
• Line of credit: Funds are available to use as needed. With HECMs, the unused portion of the line of credit may grow over time, offering additional financial flexibility.
• Combination options: Some borrowers choose a mix of monthly disbursements and a line of credit, depending on their long-term plans.

If the home is sold for more money than the reverse mortgage balance, any remaining proceeds go to the borrower or their heirs, allowing them to retain the extra value. Different reverse mortgage products—HECM or proprietary—may offer different payout structures, so it’s worth reviewing each option with a lender or counselor.

Whether the goal is to fund home improvements, manage medical expenses, support a family member, or simply create financial breathing room, these payout options allow borrowers to tailor how they access their equity.

To learn more, please visit the CFPB’s Reverse Mortgage: A Discussion Guide

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Truth #5: Your heirs have options to keep the home

A common worry among homeowners considering getting a reverse mortgage is what will happen to their home later—and whether their family members, including heirs and spouses, will still have choices.

The good news is that heirs have several clear options, and they are not personally responsible for repaying the loan balance out of pocket. However, it’s important to understand that spouses not listed as borrowers (called non-borrowing spouses) may face eviction or need to repay the loan to stay in the home after the borrower’s death if they fail to meet the terms of the loan. A 2021 update added additional protections for non-borrowing spouses.

When the last surviving borrower or eligible non-borrowing spouse either moves, sells the home, passes away, or fails to meet the loan obligations, the reverse mortgage becomes due and payable. At that point, heirs may:

• Sell the home: The proceeds are used to repay the reverse mortgage, and any remaining equity stays with the heirs or the estate.
• Keep the home: Heirs must repay the outstanding loan balance to keep the home—either with cash, through estate assets, or by refinancing into a traditional mortgage.
• Walk away from the property: Because reverse mortgages are non-recourse loans, if the loan balance exceeds the home’s value, heirs are never required to pay more than the home’s current market value. If the balance is higher than what the home is worth, heirs may allow the lender to sell the home without owing anything further.

The goal of a reverse mortgage is to offer financial flexibility during retirement—not to burden heirs or family members later. Understanding these options often helps families feel more comfortable about how reverse mortgages work and what long-term impact they may have.

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.

→Learn more about heirs’ options in our article Are heirs responsible for reverse mortgage debt?

Truth #6: Counseling and guidance are required for HECMs and most proprietary reverse mortgages

Before you get a reverse mortgage, you are required to seek guidance and participate in a counseling session with an independent government-approved housing counseling agency, specifically a HUD-approved counselor.

This step exists to make sure borrowers understand the loan terms, ongoing responsibilities, costs, and alternatives—so you’re making a well-informed decision, not a rushed one.

As part of its urban development initiatives, HUD oversees the counseling process and provides resources to protect older homeowners. The HUD program ensures that applicants receive clear explanations of the terms, responsibilities, and potential risks associated with reverse mortgages.

During the session, the counselor will review:

• How a reverse mortgage works
• Your financial obligations, including property taxes, mortgage insurance, and maintenance
• Loan costs such as closing costs, mortgage insurance premiums, and fees
• Repayment conditions and what happens when the loan becomes due
• Alternatives such as a home equity loan, home equity line of credit (HELOC), refinancing, or downsizing

Counseling provides a neutral space to ask questions, sort through your goals, and make sure the loan aligns with your long-term plans. Many borrowers also choose to seek guidance from a financial advisor to see how a reverse mortgage fits into their overall retirement strategy.

This guidance is built into the process to protect borrowers and help ensure they enter the loan with clarity and confidence.

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Truth #7: A reverse mortgage isn’t right for everyone

Just like any financial product, a reverse mortgage works well for some homeowners and less so for others. The truth about reverse mortgages is that they’re not a one-size-fits-all solution. Before moving forward, it’s important to think through how the loan may affect your long-term finances, your home, and your family.

Here are a few factors worth considering:

• Ongoing costs: Borrowers must continue paying property taxes, homeowners insurance, and upkeep. Failing to meet these obligations may cause the loan to become due.
• Remaining equity: Drawing funds from your home equity means you may leave less equity for heirs later. Some borrowers feel comfortable with this trade-off; others prefer to preserve as much equity as possible.
• Impact on needs-based benefits: While reverse mortgage proceeds are not taxed and do not affect Social Security or Medicare, large withdrawals may influence eligibility for certain needs-based programs, such as Medicaid or Supplemental Security Income. It’s wise to speak with a benefits expert if this is a concern.
• Long-term plans: A reverse mortgage may be less suitable if you plan to move soon, expect major property repairs, or prefer the predictability of other borrowing options such as a home equity loan or refinancing. Reverse mortgages might also not be suitable for homeowners planning to rent out their property.
• Shopping around to save money: Comparing different reverse mortgage options, loan types, costs, and rates from multiple lenders can help you save money and make a smarter financial decision.

A reverse mortgage could be a valuable tool when it aligns with your goals, your financial situation, and your timeline. But it’s equally important to acknowledge when another approach may serve you better. A HUD-approved counselor or financial advisor may help you evaluate the options and choose the path that best supports your retirement plans.

Types of reverse mortgages: Understanding your options

When considering a reverse mortgage, it’s important to know that there isn’t just one type—there are several, each designed to meet different needs and financial situations. Understanding the types of reverse mortgages available can help you make the best choice for your goals, whether you want to supplement retirement income, pay property taxes, or fund home repairs.

Home Equity Conversion Mortgage (HECM)

The most common option is the HECM, which is insured by the Federal Housing Administration (FHA). HECMs are available to homeowners aged 62 and older and offer flexible ways to access your home equity, including a line of credit, monthly payments, or a lump sum payment.

With a HECM, you’ll pay an initial mortgage insurance premium and ongoing mortgage insurance premiums, which help protect both you and the lender. These loans also come with federal consumer protections and require counseling from a HUD-approved counselor.

Proprietary reverse mortgages

The other option is a proprietary reverse mortgage, offered by private lenders. These loans may be available to homeowners as young as 55, depending on the lender, and often have higher loan limits than HECMs.

Proprietary reverse mortgages can be a good fit if your home’s value exceeds FHA limits or if you want more flexible loan terms. However, they are not insured by the federal government, so it’s important to carefully review the loan terms, ongoing costs, and any mortgage insurance requirements.

No matter which type of reverse mortgage you consider, be sure to compare the initial mortgage insurance premium, ongoing costs, loan balance growth, and payout options. Understanding these details will help you choose the reverse mortgage that best fits your needs and financial plans.

Not sure where to start?

Our reverse mortgage specialists will be happy to help you.

Speak to a loan specialist

The truth about getting a reverse mortgage: Final thoughts

Reverse mortgages may feel complex at first, especially with so many myths and outdated opinions floating around. But once you understand how reverse mortgages work—that they are loans, that borrowers keep ownership, that there are costs involved, and that heirs have options—the picture becomes much clearer.

A reverse mortgage loan may offer financial flexibility later in life, but whether it is the right choice depends on your goals, your home, and your long-term plans. It is important to weigh the advantages, understand the responsibilities, and talk through any concerns with a HUD-approved counselor or trusted financial professional.

If you’re interested in seeing how much of your home equity you may be able to access, start with our reverse mortgage calculator. It’s a simple way to explore what’s possible and start learning about your options.