How does a reverse mortgage work for older adults?

When you’ve spent decades building a life in your home, it’s natural to wonder how that space might continue to support you in the years ahead. Maybe you're thinking about how to stay financially stable, or how to make the most of what you’ve worked so hard to build. 

If you’re a homeowner in your 60s or beyond, you may have heard of something called a reverse mortgage, which allows you to convert part of your home’s equity into tax-free cash, all while staying in your home and maintaining ownership. 

However, there are pros and cons of reverse mortgages for older adults to be aware of and we’re here to walk you through them. 

At its core, a reverse mortgage lets homeowners 62 years or older borrow against the equity in their homes without having to sell or make monthly mortgage payments.¹  

This option can provide financial flexibility without adding a monthly mortgage payment. It’s ideal for older adults looking to supplement retirement income, cover health care expenses, or simply enjoy greater peace of mind. 

Instead of you paying the bank, the bank pays you a lump sum, monthly payments, a line of credit, or a combination of these options.  

Here’s how it works: 

• You continue to live in the home as your primary residence (this is a must). 

• You retain full ownership of the home. 

• You repay the loan in full by the time you move out permanently, sell the home, or pass away.

To qualify, you typically need to meet the following basic criteria:² 

• You must be at least 62 years old (some private programs may accept slightly younger borrowers). 

• You must have significant equity in your home (often around 50% or more). 

• Your home must meet property standards set by the lender or government programs. 

• You must demonstrate the financial ability to continue paying property taxes, insurance, and maintenance costs.

The Home Equity Conversion Mortgage (HECM) program often federally insures reverse mortgages, providing important consumer protections.³ Knowing the basics gives you a strong foundation, but there’s more to explore before you decide if this option fits your goals. 

Not all reverse mortgages are created equal — and that's a good thing. Having options means you can choose the path that best matches your lifestyle, goals, and dreams for the future.  

Let’s take a closer look at the different types of reverse mortgages available: 

Home Equity Conversion Mortgage (HECM) 

The Home Equity Conversion Mortgage, or HECM, is the most popular and widely available reverse mortgage option.

The Federal Housing Administration (FHA) backs HECMs, offering an extra layer of protection through government insurance and safeguarding you and your family throughout the loan's life.  

With a HECM, you have flexibility. You can choose to receive your funds in monthly payments, a lump sum, a line of credit, or a customized combination. This adaptability makes HECMs a wonderful option for those looking to create financial breathing room, whether for everyday expenses, home updates, or simply to enjoy more of life’s precious moments. 

Proprietary reverse mortgages 

Proprietary reverse mortgages are private loans offered by financial institutions. While they aren't backed by the federal government like HECMs, they can be a helpful option for you if you have a higher-value home and you want to access more of your home’s equity. 

Whether funding travel adventures, investing in wellness, or supporting your family, proprietary reverse mortgages can offer a valuable alternative if your home is worth more than the limits set by government programs.

Single-purpose reverse mortgages 

Single-purpose reverse mortgages are often available through nonprofit organizations, local government agencies, or state housing programs. As the name suggests, these loans fund one specific purpose: typically, home repairs, renovations, or property tax payments. 

Since they’re tailored for a particular need, single-purpose reverse mortgages usually come with lower costs and fees, making them a smart, accessible choice for those who want focused support without taking on a full reverse mortgage.  

If you’re looking to make a targeted improvement to your home or maintain your property for the long term, this option can help you take that next step with clarity and confidence. 

Choosing a reverse mortgage is a big decision, but it can also open new doors, offer greater peace of mind, and create meaningful possibilities in the next chapter of your life.  

Here are just some of the benefits a reverse mortgage can offer:⁴ 

Access to home equity without selling 

One of the biggest advantages of a reverse mortgage is that it allows you to tap into your home's equity without having to say goodbye to the place you love.  

You can remain in your cherished home using your accumulated equity to support your present and future needs. Tapping into this equity can help cover the costs of aging in place, in-home care services, and secure your retirement.

Flexible payment options 

A reverse mortgage gives you choices. Whether you prefer monthly payments, a line of credit you can draw from as needed, or a lump sum for bigger plans, there’s a payout option that can fit your lifestyle.

Essentially, you have the freedom to design your financial journey in a way that feels empowering and supportive.

No monthly mortgage payments 

With a reverse mortgage, you're typically not required to make monthly loan payments as long as you meet the loan’s basic obligations (like maintaining your home and paying property taxes and insurance). 

This can ease financial pressure and free up income for the things that make life brighter, whether that's supplies for your favorite hobbies or vacations with friends and family.

Stay in your home 

A reverse mortgage provides you with the benefit of aging in place, surrounded by your community, your comforts, and your routines. Staying in a familiar, beloved space often brings emotional well-being, and peace of mind is priceless.

Non-recourse protection 

With government-backed options like HECMs, there’s a safeguard: non-recourse protection.⁵ This means you (or your heirs) will never owe more than the value of the home when the loan becomes due.  

It’s a built-in reassurance that allows you to move forward with confidence, knowing that unexpected burdens won’t fall on your loved ones.

While reverse mortgages can offer older adults a variety of opportunities, they aren't the perfect fit for everyone. Keep these considerations in mind as you explore whether a reverse mortgage fits your unique journey: 

Costs and fees can add up 

Reverse mortgages come with upfront costs like origination fees, closing costs, and mortgage insurance premiums (especially for federally insured loans like HECMs).

Although the loan may cover many of these costs, remember that they still affect the total amount you or your heirs will eventually repay. We encourage you to talk with a trusted advisor who can walk you through the full breakdown. 

Impact on inheritance 

Using the equity in your home, a reverse mortgage may leave less for your heirs when the loan comes due. For some, this isn't a major concern, but for others, it’s an important factor. 

Ongoing responsibilities 

While you won’t have monthly mortgage payments, you’ll still be responsible for property taxes and homeowners' insurance.

Keeping up with these responsibilities is crucial to avoid loan default. It’s not a heavy burden for many, but it’s something to stay mindful of.  

Loan becomes due when you leave the home 

A reverse mortgage loan typically becomes due when you sell the home, move out permanently, or pass away. This can sometimes mean your family will need to sell the home to repay the loan.  

Talk with your loved ones about your plans so everyone is on the same page. 

Choosing a reverse mortgage is a personal decision, so before moving forward, it’s important to take a thoughtful look at a few key areas: 

• Clarify your financial goals – Whether you’re aiming to boost your monthly income, cover healthcare costs, or open the door to new opportunities, knowing your goals will help you choose the best path forward. 

• Talk it out - If you have a financial advisor, tax attorney, or a family member who helps you manage your finances, sit down and talk with them. It can help to run your ideas by another person that you trust.

• Commit to staying in your home long term – Reverse mortgages are designed for those who wish to remain in their home for many years, making it a comfortable and lasting haven.

• Prepare to manage home-related expenses – Staying current with property taxes, homeowners' insurance, and home maintenance is an important part of protecting your investment.

• Keep your loved ones informed – Sharing your plans helps create understanding and support among family members, further strengthening your decision.

The biggest advantage of a reverse mortgage is the ability to access cash from your home while staying in it. You can use the funds for anything you choose, whether it's supplementing your retirement income, covering healthcare costs, finding assisted living support, or making improvements around the house. 

Plus, with options like the Home Equity Conversion Mortgage (HECM), you can have peace of mind knowing your loan is federally insured, offering additional protection for you and your family.