How Does a Reverse Mortgage Work?

A reverse mortgage allows homeowners 62 or older to turn a portion of their home’s equity into tax-free cash, without having to sell the home or make monthly mortgage payments. Instead of you paying the bank each month like a traditional mortgage, with a reverse mortgage, the lender pays you.

It’s a flexible financial tool designed to help seniors age in place, reduce monthly expenses, and enjoy retirement with less financial worry.

Here’s a step-by-step explanation of how a reverse mortgage works:

1. You must live in the home as your primary residence
   1. A reverse mortgage is only available for your main home — not a second home or rental property. You must live there most of the year.
2. You continue to own your home
   1. You still hold the title and remain the owner. You’re responsible for paying property taxes, homeowners insurance, and keeping the home in good condition.
3. You access the equity you’ve built over time
   1. The loan allows you to convert a portion of your home’s equity into cash. This can be paid out in different ways:

• • • Monthly payments to supplement your retirement income

• • • A lump sum (usually at closing)

• • • A line of credit you can draw from as needed

• • • Or a combination of any of the above

1. You don’t make monthly mortgage payments
   1. That’s the beauty of a reverse mortgage — as long as you live in the home and meet the loan obligations, you’re not required to make monthly payments on the loan balance. Instead, interest is added to the loan over time, and the loan balance grows.
2. The loan is repaid when you no longer live in the home
   1. Typically, the loan becomes due when:

• • • You sell the home

    • You move out permanently (such as into assisted living)

    • Or you pass away

At that point, the home is usually sold, and the proceeds are used to repay the loan. Any remaining equity goes to you or your heirs.

It’s a non-recourse loan — meaning you’ll never owe more than the home is worth. Even if the loan balance grows larger than the value of the home, you (or your heirs) are never responsible for the difference. This is a key protection built into all FHA-insured HECM reverse mortgages.

A reverse mortgage doesn’t mean giving up your home — it means finally using the equity you’ve built to support the life you deserve in retirement.

Learn more about eligibility requirements for a reverse mortgage, situations where a reverse mortgage is best used, and common myths around reverse mortgage that we debunk with facts