Reverse Mortgage
A loan for homeowners aged 62+ that converts home equity into cash, with repayment deferred until the home is sold or the owner moves out.
What is Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners aged 62 or older to convert home equity into cash — as a lump sum, line of credit, or monthly payments — without having to sell the home or make monthly loan payments. The loan balance grows over time as interest accrues, and repayment is deferred until the homeowner sells the home, moves out, or passes away. The most common type is the FHA-insured Home Equity Conversion Mortgage (HECM). The homeowner retains the title and must continue paying property taxes, insurance, and maintenance. At repayment, the home is usually sold to repay the loan; heirs can keep the home by repaying the debt. Reverse mortgages are controversial — fees are high, and they reduce the estate left to heirs.
Example
A 70-year-old homeowner with a $500,000 paid-off home takes out a HECM reverse mortgage, receiving $200,000 as a lump sum (based on age, home value, and current rates). No monthly payments are required. They remain in the home. At death at age 85, the loan balance has grown to $340,000 due to accumulated interest and fees. Their heirs sell the home for $650,000, repay the $340,000 mortgage, and keep $310,000.
Source: US Department of Housing and Urban Development — HECM