Reverse Mortgages: How They Work (Pros & Cons)

What a reverse mortgage is

A reverse mortgage lets homeowners age 62 or older borrow against the equity in their home and receive that money as a lump sum, monthly payments, a line of credit, or a combination. The most common version is a Home Equity Conversion Mortgage (HECM), which is insured by the FHA.

The defining feature: you have no required monthly mortgage payment. Instead of you paying down the loan, the balance grows over time and is repaid later — usually when you sell, move out, or pass away. You keep the title to your home the whole time.

How it works in 2026

How much you can borrow depends on your age, current interest rates, and your home's value — up to the 2026 HECM limit of $1,249,125. Older borrowers and homes with more equity generally qualify for more.

There's also a version for buying a home, called a HECM for Purchase (H4P). It lets someone 62+ buy a new primary residence and use a reverse mortgage for part of the financing in a single transaction — handy for right-sizing in retirement without taking on a monthly mortgage payment.

You still have obligations

'No monthly mortgage payment' does not mean no responsibilities. To keep the loan in good standing, you must keep up with the ongoing costs of owning the home. Falling behind on these can put the loan in default and, in a worst case, lead to foreclosure.

• ✦Property taxes must stay current.
• ✦Homeowners insurance must stay in force.
• ✦The home must remain your primary residence.
• ✦You're responsible for maintenance and keeping the home in good condition.

The honest pros

For the right household, a reverse mortgage solves real problems. It can turn home equity into cash flow without forcing a move or adding a monthly bill.

• ✦No required monthly mortgage payment eases a fixed-income budget.
• ✦You keep the title and can stay in your home.
• ✦Funds are generally not treated as taxable income (confirm with your tax advisor).
• ✦A line-of-credit option can sit unused and grow as a standby resource.
• ✦It's non-recourse — you or your heirs never owe more than the home is worth when it's sold.

The real cons

The trade-offs are just as real, and this is where an honest conversation matters most. A reverse mortgage reduces your home equity over time, which directly affects what you — or your heirs — keep later.

• ✦The loan balance grows over time as interest and fees are added, shrinking your equity.
• ✦It reduces the inheritance you leave — heirs must repay the balance (usually by selling or refinancing) to keep the home.
• ✦Upfront and ongoing costs, including FHA mortgage insurance, can be significant.
• ✦Moving out for more than 12 months (for example, into long-term care) can make the loan due.
• ✦It may affect need-based benefits like Medicaid, so check before you commit.

The required counseling step

Before you can take out a HECM, you're required to complete a counseling session with an independent, HUD-approved counselor. This isn't a formality — it's a consumer protection designed to make sure you understand the costs, the alternatives, and the effect on your heirs before anything is signed.

It's also a good gut check. A reverse mortgage is a serious decision, and the right move is to compare it against other options — downsizing, a traditional home-equity loan, or simply staying put. Jodie is happy to walk through all of it with you and your family, with no pressure either way.