Reverse Mortgages Explained: Costs, Rules, and Who Should Avoid One

A reverse mortgage reverses the usual direction of a home loan. Instead of you sending the lender a payment each month, the lender sends money to you, and the amount you owe grows instead of shrinking. That makes it attractive to some retirees who own a home but have little cash, and risky for others. The Consumer Financial Protection Bureau puts the central point plainly: a reverse mortgage is not free money. It is a loan in which borrowed money plus interest plus fees, added each month, produces a rising loan balance.

This guide covers the most common type, the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration. It explains who qualifies, what the loan costs, how the balance behaves, what protections exist for a spouse, and who should be cautious. It does not quote current interest rates or lender fees, because those change and differ by lender, and you should ask for written figures from any lender you consider.

Who can get one

Federal rules set a few basic conditions. The youngest borrower must be at least 62 years old at the time of closing, according to FHA's regulations. The home must be your principal residence, and CFPB notes that the title stays in your name. You also have to complete counseling before you borrow. Under FHA rules, the borrower, any non-borrowing spouse, and any non-borrowing owner must receive counseling from a HUD-approved HECM counselor, who must discuss the loan's features and obligations, including what happens to a spouse who is not on the loan.

Lenders must also review whether you can handle the loan's ongoing duties. FHA requires a financial assessment before approval that looks at your credit history, cash flow, and residual income, to judge whether the loan is sustainable for you. A weak assessment does not always mean a denial. It can mean the lender requires part of the loan to be set aside to pay property taxes and insurance.

How much you can borrow

The amount you can borrow is called the principal limit. CFPB explains that it depends on your age, the interest rate on the loan, and the value of your home. In general, older borrowers, higher-priced homes, and lower interest rates produce higher principal limits. With more than one borrower, the calculation uses the age of the youngest borrower or eligible non-borrowing spouse. FHA publishes the principal limit factor tables lenders use, so two lenders quoting the same age and home value should be working from the same framework, even if their rates differ.

There is also a ceiling on the home value that FHA counts. For 2026, the HECM maximum claim amount is $1,249,125, according to HUD, up from $1,209,750 in 2025. It applies to FHA case numbers assigned on or after January 1, 2026. If your home is worth more than that, the excess does not add to the borrowing capacity. For a home appraised below the limit, the appraised value is what counts.

Because the principal limit is a fraction of the home's value, the amount you can actually borrow is always less than your equity. Younger borrowers receive smaller fractions, which is one reason a reverse mortgage at 62 gives much less than the same loan at 80.

What it costs

The cost is the part most people underestimate. FHA's mortgage insurance premium has two pieces, according to HUD's Mortgagee Letter 2017-12. The initial premium is 2 percent of the maximum claim amount, and the annual premium is 0.5 percent of the outstanding mortgage balance. These premiums fund FHA's insurance on the loan, and the annual one is charged on a balance that keeps growing.

Here is an illustration with round numbers. Suppose a home is appraised at $400,000, which is below the maximum claim amount. The initial premium would be 2 percent of $400,000, or $8,000. FHA rules also cap the origination fee at the greater of $2,500 or 2 percent of the first $200,000 of the claim amount plus 1 percent of the rest, up to $6,000. On a $400,000 home, that cap works out to $6,000. Add third-party closing costs such as the appraisal, title work, credit report, and recording fees, and costs at closing can reach five figures before you see any money. Lenders may accept a lower origination fee, and fees can differ by lender, so compare itemized estimates.

The origination fee can be fully financed with the loan. Financing helps if you have no cash, but costs that are added to the balance also accrue interest.

Credit line growth and the first year

CFPB notes that an adjustable-rate line of credit can include a growth feature. Money you do not use stays available and keeps growing, up to a maximum amount stated in your mortgage. FHA's definition of the principal limit explains the mechanism: it increases each month by one-twelfth of the loan's interest rate plus one-twelfth of the annual mortgage insurance rate. That can make a line of credit useful as a reserve for later years, but the growth is not free money, because your cost of borrowing is built into the same arithmetic.

How the balance grows

With a reverse mortgage you make no required monthly mortgage payments, and CFPB says interest and fees are added to the balance each month. That is compounding, and the effect over time can be large. As a hypothetical, suppose someone draws $100,000 and the loan accrues interest and insurance premiums at a combined 7 percent a year, with nothing repaid. After 5 years the balance would be about $140,300, after 10 years about $196,700, and after 15 years about $275,900. The rate here is invented to show the arithmetic and is not a current quote, but the shape of the growth is why home equity can shrink faster than people expect.

The payment option you choose matters. CFPB lists three main ways to receive funds. A line of credit and a monthly payout generally cost less than a lump sum, because you pay interest and fees only on the money you have drawn. A lump sum is usually paid under a fixed rate and means you pay interest on the full amount from day one. Lump sums also carry a higher risk for younger borrowers because they may outlive the funds.

What you must keep doing

Having no monthly payment does not mean having no obligations. CFPB says you must keep paying property taxes and homeowners insurance, use the home as your principal residence, and keep the house in good condition. FHA's property-charge rules treat taxes, insurance, and some association fees as obligations of the borrower.

Failing at these duties is the most common route to trouble. If you fall behind on taxes or insurance, the loan can become due and payable, which means the lender can demand repayment of the full balance. Some borrowers use a set-aside, in which part of the loan is reserved to pay the charges, and a lender may require one based on your financial assessment. If your budget is already stretched by taxes and insurance, a reverse mortgage does not fix that problem and may make it harder to solve.

When the loan comes due

Under FHA rules, the balance becomes due and payable when the last surviving borrower dies and the home is not the principal residence of a surviving borrower, or when the borrower sells or transfers all of their title. It can also be called due if the home stops being the borrower's principal residence, if a borrower is away from the home for more than 12 consecutive months because of physical or mental illness, if property charges are not paid, or if another obligation under the mortgage is not met.

Most loans end with a home sale, and CFPB says borrowers or their heirs will eventually have to repay the loan, usually by selling the home. Federal rules also make the loan non-recourse. The borrower has no personal liability for the outstanding balance, and the lender enforces the debt only through sale of the property, so a shortfall is not collected from the borrower's other assets if the home sells for less than the balance. FHA rules also give the borrower or the estate 30 days after notice to repay the loan, sell the property, provide a deed in lieu of foreclosure, or correct the problem.

Protections for a spouse who is not on the loan

A spouse who is not on the loan could otherwise be forced out when the borrower dies. FHA rules provide for an Eligible Non-Borrowing Spouse, who can have repayment deferred after the borrower's death. To qualify, the spouse must have been married to the borrower at closing and for the borrower's lifetime, be named in the loan documents, and live in the home as a principal residence.

The protection has conditions. Within 90 days of the borrower's death, the spouse must establish legal ownership or another right to remain in the home for life, and must keep meeting the loan's obligations, including property charges. If the spouse stops qualifying, the loan generally becomes due. A couple should raise this at counseling and make sure the spouse is named correctly at closing.

Questions to ask before you sign

Bring a written list to counseling and to each lender. Ask for an itemized estimate of every cost at closing, and which of them are financed. Ask which payment option fits your goal, and how the line of credit would grow. Ask whether the lender would require a set-aside for taxes and insurance. And ask what happens if you need to move to a care facility, because FHA treats the home as your principal residence during a temporary stay in a health care institution only if it does not exceed twelve consecutive months.

Ask your spouse or partner to attend. A decision that affects who can stay in the home belongs to everyone who lives there, and counseling is required for non-borrowing spouses and owners as well.

Who should think twice

A reverse mortgage tends to fit people who plan to stay in the home for a long time, can pay the ongoing property costs, and have considered other options. It deserves extra caution if you expect to move within a few years, since the upfront costs would be spread over a short time. It is also a poor fit if you cannot afford taxes, insurance, and upkeep, or if you want to leave the home to heirs free of debt.

Alternatives include selling and downsizing, borrowing against the home with a conventional home equity loan or line if you can make the payments, and local property tax relief programs. Ask a HUD-approved counselor to compare them with your numbers.

CFPB also warns about scams. Be skeptical of contractors who suggest a reverse mortgage to pay for repairs, and of ads for veterans promising special no-payment reverse mortgages, since the Department of Veterans Affairs does not offer reverse mortgage loans. With most reverse mortgages you have three business days after closing to cancel, in writing.

Take the numbers to a counselor before you sign anything. A loan that gives you cash today should still look right when its balance is at its highest.