Reverse mortgages: convert eligible home equity into a retirement-planning resource.

How this loan works

A reverse mortgage allows an eligible older homeowner to borrow against home equity without a required monthly mortgage principal-and-interest payment. The most common federally insured version is the Home Equity Conversion Mortgage, or HECM, insured by FHA. The borrower retains title, subject to the loan and program obligations.

For a HECM, at least one eligible borrower generally must be age 62 or older. The home must be an eligible principal residence, and the borrower must complete counseling with a HUD-approved HECM counselor. The lender also conducts a financial assessment focused on the borrower’s capacity and willingness to pay property charges.

The loan balance grows as funds are advanced and interest and financed costs accrue. The loan generally becomes due after the last borrower dies, sells, permanently leaves the home, or fails to meet obligations such as paying property taxes and insurance or maintaining the property. Non-borrowing spouse protections are technical and should be reviewed for the exact case.

What lenders review

Qualification is never based on one number. The lender reviews the borrower, property, occupancy, transaction structure, and documentation together. The following items are common decision points, but the final requirements depend on the selected program and the complete application.

• Age and principal-residence eligibility under the selected reverse mortgage program.
• Sufficient equity after paying off existing liens and covering required costs; available proceeds depend on age, value, current rates, and program limits.
• Completion of independent counseling with a HUD-approved HECM counselor before the lender can proceed as required.
• A financial assessment of income, assets, credit history, and property-charge payment history; a set-aside may be required in some cases.
• An eligible property with acceptable appraisal, title, insurance, and condition, plus continued ability to pay taxes, insurance, association charges, and maintenance.

Planning the transaction

Include the household and trusted advisors early. Discuss who is on title, who will be a borrower or eligible non-borrowing spouse, who lives in the home, and what heirs may want to do later. Estate, Medicaid, tax, and public-benefit questions require qualified professional advice.

Compare payout structures carefully. HECMs may offer eligible combinations of line of credit, monthly advances, or lump-sum access, subject to program limits. Fixed- and adjustable-rate structures work differently. Do not choose based only on the largest initial proceeds.

Budget property charges for life. Eliminating a required mortgage principal-and-interest payment does not eliminate taxes, insurance, association dues, utilities, or maintenance. Failure to meet loan obligations can trigger default.

Before choosing a program, compare the full monthly payment, cash to close, required reserves, documentation burden, property requirements, and expected time in the home or loan. A lower down payment does not automatically mean a lower total cost, and a larger down payment is not always the best use of cash. The useful answer is the one that fits the whole plan.

Questions to ask before applying

1. Who will be a borrower, non-borrowing spouse, owner, and resident?
2. How much equity remains after liens, costs, and planned advances?
3. Which payout and rate structure fits the goal?
4. How will taxes, insurance, maintenance, and association charges be paid?
5. What are the alternatives and the likely effect on heirs?