A reverse mortgage converts a portion of your home equity into loan proceeds. The Home Equity Conversion Mortgage (HECM (opens in a new tab)), insured by the Federal Housing Administration, is the most common type. A HECM generally becomes due and payable when the last borrower sells the home, permanently moves out or passes away, although special protections may apply to an eligible non-borrowing spouse who meets all applicable HUD requirements.
Every prospective HECM borrower must complete counseling with a HUD-approved housing counselor before the loan can proceed, and the lender cannot waive it. The counselor is independent of the lender and has no financial interest in whether you get the loan. The session covers how the loan works, its costs, your responsibilities and possible alternatives. If you are helping a parent research a HECM, attending the counseling session together may help your family understand the decision, if the borrower wants that.
HECM qualification at a glance
- Minimum age
- 62 (all borrowers on the loan)
- Property requirement
- Primary residence, owner-occupied
- Equity required
- Significant equity, typically 50% or more
- Counseling
- HUD-approved counseling required for every borrower
- Ongoing obligations
- Property taxes, homeowners insurance and home maintenance still required
These are general market guidelines, not a promise from Wonder Rates. Actual amounts depend on the age of the youngest borrower, current interest rates and your home’s appraised value.
reverse_mortgage_infographic · 1600×900How a reverse mortgage actually works
A reverse mortgage (opens in a new tab) flips a normal mortgage upside down. With a regular mortgage, you borrow a lump sum and your balance shrinks over time as you pay it off. With a HECM, you receive money from your equity and your balance grows instead, as interest and fees are added on top of what you already borrowed. Your equity shrinks as the balance grows.
Borrowers can typically receive the proceeds as a lump sum, fixed monthly advances, a line of credit, or a combination. HUD introduced protections for certain eligible non-borrowing spouses in 2014 and has updated its policies since: if the borrowing spouse passes away first, an eligible non-borrowing spouse may be able to stay in the home and defer repayment, but only if all applicable HUD requirements continue to be met.
No required monthly principal and interest payment is due on a HECM. But you must keep paying property taxes, homeowners insurance, maintenance and other property charges such as HOA fees, and failing to do so can make the loan due and payable and may lead to foreclosure. Before closing, lenders must run a financial assessment to check whether you can reasonably keep up with these costs, and some loans set aside part of the proceeds to cover future taxes and insurance.
How it works with Wonder Rates
- 1
Get an early estimate
Answer a few questions about your age, home value and remaining mortgage balance to see a rough idea of what might be available.
- 2
Complete HUD-approved counseling
This step happens before any application moves forward, and Wonder Rates can point you to HUD’s counselor directory to schedule it.
- 3
Talk to a loan officer
Once counseling is complete, a licensed loan officer reviews your specific numbers, payout options and ongoing obligations in detail.
- 4
Close with full documentation
Every step, from appraisal to closing disclosures, is designed to make sure you understand exactly what you are agreeing to.
reverse_mortgage_video · 16:9 embedA licensed loan officer can walk you through your own numbers, in English or Tiếng Việt.
Call 408-600-1900Who a reverse mortgage is for
The retiree who is house-rich but cash-poor
If most of your net worth is tied up in your home and your monthly income feels tight, a reverse mortgage can provide proceeds for everyday expenses without adding a required monthly principal and interest payment. Taxes, insurance, maintenance and other property charges remain your responsibility.
The homeowner facing a major repair or medical cost
A reverse mortgage can fund a large one-time expense, such as a roof replacement or a medical bill, from equity you have already built instead of a personal loan or credit card debt.
The homeowner who plans to stay long term
A reverse mortgage tends to make more financial sense the longer you remain in the home, since upfront costs are spread over more years. If you plan to age in place for a decade or more, the math looks different than if you might move soon.
The buyer downsizing into a smaller home
HECM for Purchase lets you put cash from the sale of a previous home toward a new one and use a reverse mortgage for the rest, without a required monthly principal and interest payment. Taxes, insurance, maintenance and property charges remain your responsibility.
Pros and cons
Pros
- No required monthly principal and interest payment, although property taxes, insurance, maintenance and other property charges remain due
- You keep the title and can stay in the home as long as you meet the requirements
- Funds can be used for any purpose, including bills, repairs or medical costs
- HECMs include non-recourse protections when the loan becomes due
Cons
- Your loan balance grows over time instead of shrinking
- Reduces the equity and inheritance left to your heirs
- Upfront fees and ongoing costs are typically higher than a HELOC or home equity loan
- You can still lose the home if property taxes or insurance go unpaid
Who should not consider a reverse mortgage
A reverse mortgage is not the right fit for everyone, and being honest about that is part of doing this right.
- If you plan to move within a few years
the upfront costs are spread over very little time, which makes it an expensive way to solve a short-term need.
- If you are counting on leaving the home to your heirs debt-free
a reverse mortgage will reduce what is left. The balance has to be repaid first, usually by selling the home, before anything passes to your estate.
- If you cannot comfortably keep up with property taxes, insurance and maintenance
a reverse mortgage adds real risk. Failing to meet these obligations can make the loan due and payable and may lead to foreclosure.
- If you only need a small amount for a short period
other options may cost less overall. A HELOC, a personal loan or a local property tax deferral program are all worth comparing first.
- If you feel pressure from a contractor, salesperson or family member to sign quickly
slow down. HUD counseling exists to give you space to think it through without that pressure.
A note on taxes
Reverse mortgage proceeds are generally treated as loan advances, not income, but every homeowner’s tax situation is different. Consult a tax professional about how a reverse mortgage may affect your tax return before moving forward.
This article is for educational purposes only and is not a commitment to lend. Reverse mortgage proceeds are generally treated as loan advances, not income; consult a tax professional about your situation.
Wonder Rates compares Reverse Mortgage options across multiple wholesale lenders.