Can a Reverse Mortgage Eliminate My Monthly Mortgage Payment?

Yes, a reverse mortgage can help you avoid monthly mortgage payments in the traditional sense. With a reverse mortgage, instead of making monthly payments to a lender, the lender makes payments to you, either as a lump sum, monthly disbursements, or a line of credit, depending on the plan you choose. This is because a reverse mortgage allows homeowners—typically those 62 or older—to convert part of their home equity into cash without having to sell their home or take on additional monthly bills.

However, it’s not entirely payment-free. You’re still responsible for property taxes, homeowners insurance, and maintenance costs. The loan itself doesn’t require monthly repayments; it’s typically repaid when you sell the house, move out permanently, or pass away, with the proceeds from the home sale covering the balance. So, while it eliminates the traditional mortgage payment, it shifts the financial responsibility elsewhere and reduces your home equity over time.

How It Works

• • A reverse mortgage is essentially a loan against your home’s equity, but unlike a regular mortgage or home equity loan, you don’t pay it back monthly. The most common type is a Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA). 
    • Eligibility: You need to be 62 or older, own your home outright (or have a low mortgage balance), and live in it as your primary residence.
    • Payout Options: You can get the money as a lump sum, fixed monthly payments, a line of credit, or a mix of these. The amount depends on your age, home value, and current interest rates.
    • Repayment: No monthly payments are required. The loan, plus interest and fees, gets repaid when you sell the home, or pass away. At that point, the house is typically sold, and the proceeds settle the debt. Any leftover equity goes to you or your heirs.

Pros

• • No Monthly Mortgage Payments: It frees up cash flow, especially if you’re on a fixed income like Social Security or a pension.
  • Stay in Your Home: You keep living in your house without the pressure of a traditional mortgage.
  • Flexible Funds: The money can cover anything—medical bills, home repairs, or just daily expenses.
  • Protected Equity Option: With a line of credit, the unused portion grows over time, giving you a bigger cushion later if needed.

Cons

• • Eroding Equity: As interest compounds (it’s added to the loan balance), your home equity shrinks. This could leave little or nothing for heirs unless the home’s value skyrockets.
  • Upfront Fees: Closing costs, origination fees, and mortgage insurance premiums can be more expensive than traditional loans.

A Quick Example

• • Say you’ve got a $300,000 home, fully paid off. At 70 years old, you might qualify for a $150,000 reverse mortgage. You take it as monthly payments of $1,000. You live there 10 more years, the loan balance increases to $170,000.  When you pass, the home’s sold for $350,000, your heirs get $180,000. 

Reverse mortgages can be a useful financial tool for eligible seniors looking to supplement income, pay for healthcare, or cover living expenses, but they also come with complexities that should be thoroughly understood before proceeding.

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