Reverse Mortgages Explained: How a HECM Works for Homeowners 62+

A reverse mortgage, most commonly structured as a Home Equity Conversion Mortgage (HECM) and insured by the FHA, allows homeowners aged 62 and older to convert home equity into cash — as a lump sum, monthly payments, or a line of credit — without making monthly mortgage payments during the life of the loan.

How a reverse mortgage differs from a traditional mortgage

With a traditional mortgage, the borrower makes payments that reduce the loan balance over time. With a reverse mortgage, the loan balance generally increases over time, as interest and fees accrue without regular payments being made — the opposite direction from a traditional amortization schedule. The loan becomes due when the borrower sells the home, moves out permanently, or passes away.

Who qualifies

Eligibility generally requires being at least 62 years old, owning the home outright or having significant equity, occupying the home as a primary residence, and meeting financial assessment requirements demonstrating the ability to keep up with ongoing property taxes, insurance, and maintenance — since falling behind on these can trigger default even on a loan with no required monthly payment.

How funds can be received

HECM borrowers can typically choose between a lump sum, fixed monthly payments for a set period or for as long as they remain in the home, a line of credit that can be drawn as needed, or a combination of these options — offering some flexibility depending on the borrower's financial needs and goals.

Costs involved

Reverse mortgages typically involve higher upfront costs than a standard mortgage, including an origination fee, mortgage insurance premiums (both upfront and ongoing), and closing costs, along with accruing interest over the life of the loan — all of which reduce the equity ultimately available to the borrower or their heirs.

What happens to the home when the borrower dies or moves out

When the loan becomes due, heirs generally have options: pay off the loan balance (often by selling the home) and keep the property, or allow the home to be sold with proceeds going toward the loan balance. Because HECMs are FHA-insured, heirs generally aren't personally liable for any amount owed beyond the home's value, even if the loan balance has grown to exceed it — an important borrower protection.

Why reverse mortgages aren't right for every situation

Because the loan balance grows over time and reduces the equity available to leave as inheritance, reverse mortgages tend to make more sense for homeowners planning to stay in the home long-term, without strong plans to leave the home's full equity to heirs, and who have a genuine need for the income or liquidity the reverse mortgage provides.

Where to review current program details

HUD's HECM program page outlines current eligibility, counseling requirements (independent HUD-approved counseling is mandatory before obtaining a HECM), and cost structures for reverse mortgages.

Compare a reverse mortgage against other equity options

Reverse mortgages are one of several ways to access home equity, each with different tradeoffs. Use MortgageWise.online's free calculator to compare accessing equity through a reverse mortgage against a traditional HELOC or home equity loan.

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