A reverse mortgage can be a practical way for homeowners aged 62 and older to tap the value built up in their homes while continuing to live there. Unlike a traditional mortgage, this loan pays you — as cash in a lump sum, monthly payments, a line of credit, or a mix of those — and avoids monthly principal and interest payments. That flexibility makes it attractive for retirees who need extra income, but it also carries costs and long-term implications that deserve careful review.

Key eligibility requirements for seniors

To qualify, the primary borrower must be at least 62 years old. The home must be the borrower’s principal residence — second homes and most investment properties don’t qualify. Applicants should either own the property outright or have a relatively small outstanding mortgage that can be paid off with proceeds from the reverse mortgage.

Lenders will also confirm that borrowers can continue to meet ongoing obligations tied to homeownership, including property taxes, homeowners insurance, and routine maintenance. Failing to keep up with these responsibilities can lead to default and possible foreclosure, so having a plan for these costs is essential.

How reverse mortgage funds can be delivered

Reverse mortgage borrowers can choose from several disbursement options to suit different needs:

• Lump sum: A single upfront payment useful for large expenses or paying off an existing mortgage.
• Monthly payments: Regular income streams can supplement Social Security or pension benefits.
• Line of credit: Funds you can draw from when needed; unused portions typically grow over time.
• Combination: A mix of the above to balance immediate needs and future flexibility.

The proceeds are generally not considered taxable income, which often makes reverse mortgage funds attractive for covering living costs, medical bills, home improvements, or other personal needs. Keep in mind, however, that taking funds reduces the equity in the home, and interest and fees accumulate over time.

Costs and fees to expect

Reverse mortgages include a variety of fees and charges. Understanding these will help you compare options and gauge the impact on your estate.

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Cost Type	Typical Range	Description
Origination fee	$2,500–$6,000	Lender fee often based on home value and loan size
Mortgage insurance premium (HECM)	2% upfront, ~0.5% annual	Required for FHA-insured Home Equity Conversion Mortgages (HECMs)
Closing costs	$1,000–$3,000	Appraisal, title work, recording fees and similar charges
Servicing fees	$30–$35 monthly	Lender administration and account management fees

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Prices, rates, or cost estimates mentioned in this article are based on the latest available information but may change over time. Independent research is advised before making financial decisions.

Consumer protections and important safeguards

Many modern reverse mortgage programs include protections designed to reduce borrower risk. If you pursue a federally insured Home Equity Conversion Mortgage (HECM), you must complete counseling with a HUD-approved counselor before loan approval. Counseling ensures you understand loan terms, alternatives, and how the reverse mortgage could affect taxes, benefits, and your heirs.

HECMs are non-recourse loans, meaning borrowers (or their estates) will not owe more than the home’s market value when the loan becomes due, even if the balance exceeds that value. This FHA insurance backing provides a critical safety net.

There are also protections for spouses who are not on the loan: under certain conditions, a non-borrowing spouse may continue living in the home after the borrower dies. Still, rules vary by lender and specific loan terms, so it’s essential to verify protections for your situation.

Weighing the trade-offs

While reverse mortgages can free up cash and eliminate monthly mortgage payments, they’re not free money. Interest and fees accrue, shrinking the home equity available to leave as an inheritance. If preserving home equity for heirs is a priority, or if you plan to move soon, other options (downsizing, refinancing, buying a life annuity, or tapping savings/investments) might be more appropriate.

Also consider how a reverse mortgage could affect eligibility for need-based programs, though the proceeds themselves are typically not counted as taxable income. The ongoing responsibilities — taxes, insurance, and upkeep — remain with the homeowner and must be affordable over the long term.

Making an informed decision

Before signing any agreement, speak with a HUD-approved reverse mortgage counselor and consider consulting a trusted financial advisor, tax professional, and your family. Ask lenders for a detailed breakdown of projected costs over time, scenarios showing how interest accrues, and specific protections for surviving spouses.

Also request multiple quotations to compare origination fees, ongoing costs, and credit features like growing lines of credit. Carefully review loan documents and clarify any terms you don’t fully understand.

A reverse mortgage can be a useful tool for supplementing retirement income or addressing large expenses without moving. But because the loan alters your home equity and may affect inheritance and long-term financial flexibility, it’s crucial to evaluate personal goals, alternative strategies, and the full cost structure before proceeding.

If you’re considering a reverse mortgage, take time to gather information, consult professionals, and discuss the decision with loved ones to ensure the choice aligns with your financial needs and family plans.