What is a Reverse Mortgage?
A reverse mortgage is a loan available to homeowners aged 62 and older that allows them to convert part of their home equity into cash. Unlike a traditional mortgage, the borrower doesn’t make monthly payments. Instead, the loan is repaid when the borrower sells the home, moves out permanently, or passes away.
15 Must-Know Reverse Mortgage Facts
1. You Keep Ownership of Your Home
Many believe the bank takes ownership, but that’s false. You remain the legal owner as long as you meet loan obligations like paying taxes and insurance.
2. You Must Live in the Home
The property must be your primary residence. If you move out for more than 12 consecutive months (like to a nursing home), the loan becomes due.
3. Reverse Mortgages Are Not Free Money
It’s a loan — with interest and fees that add to the balance over time. Eventually, it must be repaid, usually through the sale of the home.
4. Loan Amounts Depend on Several Factors
Your available loan amount depends on:
- Your age
- Home value
- Current interest rates
- Lending limits set by HUD
5. Interest Rates Can Vary
Reverse mortgages offer fixed or adjustable rates. Adjustable rates are more common, but fixed-rate loans may offer predictability.
6. Counseling is Mandatory
You must attend a HUD-approved counseling session to ensure you understand the loan terms and implications before proceeding.
7. Heirs Have Options
After you pass away, your heirs can either:
- Repay the loan and keep the home
- Sell the home and use proceeds to pay the loan
- Walk away if the loan exceeds the home’s value (FHA insurance covers the shortfall)
8. You Can Use Funds However You Want
Common uses include:
- Supplementing retirement income
- Paying medical bills
- Home renovations
- Eliminating existing mortgage debt
9. Reverse Mortgages Have Upfront Costs
Expect to pay:
| Cost Item | Typical Range |
|---|---|
| Origination Fee | $2,500–$6,000 |
| Mortgage Insurance | 2% of home value upfront |
| Third-party Fees | $1,500–$3,000 |
10. There Are Three Main Types of Reverse Mortgages
- Home Equity Conversion Mortgage (HECM) – Federally insured, most common
- Proprietary Reverse Mortgage – Private lenders, larger loan amounts
- Single-Purpose Reverse Mortgage – Nonprofits/government, specific uses like home repairs
11. You Must Keep Up With Property Expenses
You’re still responsible for:
- Property taxes
- Homeowners insurance
- HOA dues (if applicable)
- Basic maintenance
Failure to pay can result in foreclosure.
12. You Can Pay It Back Early
There are no prepayment penalties if you decide to repay the loan early or refinance it.
13. Reverse Mortgages Aren’t Right for Everyone
If you plan to move soon, or if you want to leave your home outright to heirs, a reverse mortgage might not be your best option.
14. Not All Homes Qualify
Eligible properties typically include:
- Single-family homes
- FHA-approved condos
- 2–4 unit properties (if the borrower lives in one unit)
Manufactured homes must meet specific HUD requirements.
15. Reverse Mortgages are Non-Recourse Loans
You’ll never owe more than the home’s appraised value at the time of sale. This protects you and your heirs from debt beyond the home’s worth.
Quick Pros and Cons Overview
| Pros | Cons |
|---|---|
| Tax-free cash flow | High fees and costs |
| No monthly mortgage payments | Reduces home equity |
| Flexible payout options | Can affect inheritance plans |
| Stay in your home | Must maintain home and insurance |
FAQs About Reverse Mortgage Facts
Are reverse mortgages a scam?
No, but misinformation exists. Reverse mortgages are legitimate financial tools regulated by HUD and the FHA.
Do reverse mortgages affect Social Security or Medicare?
Reverse mortgage proceeds don’t affect Social Security or Medicare benefits. However, they could impact Medicaid eligibility in some cases.
Can you get a reverse mortgage on a second home?
No. Reverse mortgages are only for primary residences.
How long does it take to get a reverse mortgage?
The process typically takes 30–45 days from application to closing.
What happens if home values fall?
You (or your heirs) are protected by FHA insurance. Even if the home’s value drops below the loan amount, you won’t owe more than the home’s market value.
Conclusion
Understanding the facts about reverse mortgages in 2025 is crucial before making any decision. While they offer real financial flexibility, they aren’t for everyone. Weigh the costs, benefits, and long-term impacts carefully. And always work with a reputable lender and HUD-approved counselor to make sure you’re getting the right deal for your future.