Reverse Mortgages Explained: How They Work and What to Ask First
If you are 62 or older and own your home, you may have seen ads for a “reverse mortgage.” The name is confusing, and the offers can sound too good to be true. This guide explains in plain English how the most common type works, what it costs, and what to ask before you decide. It is general information, not advice for your situation.
What a Reverse Mortgage Is
A reverse mortgage is a special home loan for homeowners who are 62 and older. You borrow against the equity in your home, which is the part you own. The title stays in your name, and you do not make monthly mortgage payments, according to the Consumer Financial Protection Bureau (CFPB).
The most common kind is the Home Equity Conversion Mortgage, or HECM. It is insured by the Federal Housing Administration (FHA), part of HUD.
How the Loan Grows
With a regular mortgage, you pay the balance down over time. A reverse mortgage works the other way. Interest and fees are added to the balance each month, so the amount you owe grows while your equity shrinks. The CFPB is clear that this is a loan, not free money.
The loan generally comes due when you no longer live in the home. You or your heirs will then need to repay it, usually by selling the house.
What You Still Have to Do
A reverse mortgage does not end your costs as a homeowner. The CFPB lists these ongoing duties:
- Live in the home as your main residence.
- Pay your property taxes and homeowners insurance.
- Keep the home in good condition.
Falling behind on these can put the loan in trouble, so plan for them before you sign.
Counseling Is Required for a HECM
To qualify for an FHA-insured HECM, you must complete counseling with a HUD-approved housing counseling agency. You can also talk with a counselor before you decide whether to apply. If a lender has already made a pitch, tell the counselor what you were offered.
To find a counselor, use the search tool on HUD’s website or call HUD’s automated line at 800-569-4287.
Questions to Ask Before You Decide
The CFPB suggests thinking through these points, ideally with a counselor and someone you trust:
- What are the upfront costs and fees at closing, and the ongoing costs over the life of the loan?
- How would the loan affect a spouse or anyone else who lives with you?
- What happens if you sell, move to a nursing home or assisted living, or pass away?
- How would an existing mortgage on the home be handled?
- How would you receive the money: a line of credit, monthly payments or a lump sum?
- Could another option, such as a smaller home or other help, suit you better?
Watch for Pressure and Scams
The CFPB warns that some contractors push homeowners toward a reverse mortgage to pay for repairs, which can be a scam. Some ads also falsely suggest the VA approves reverse mortgages or target veterans with “no-payment” offers. The VA does not offer them.
Be cautious about anyone who rushes you, cold-calls you, or asks for money upfront. If you do sign, most reverse mortgages give you three business days afterward to cancel without penalty. Cancel in writing, preferably by certified mail with a return receipt.
Where to Get Help
A HUD-approved counselor is a good first call. For general questions, the CFPB’s consumer line is (855) 411-2372. Because rules and costs vary, check your own situation with a counselor, your state’s housing agency or a qualified professional before you decide.
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