Published by Jessica Weisman-Pitts
Posted on April 22, 2022
4 min readLast updated: February 7, 2026
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Reverse mortgages offer seniors the ability to tap into the equity of their property and receive cash for their stake. As the name might imply, the way a reverse mortgage works is akin to the opposite of a traditional mortgage. With a reverse mortgage, you’re able to borrow against the equity in you...
Reverse mortgages offer seniors the ability to tap into the equity of their property and receive cash for their stake. As the name might imply, the way a reverse mortgage works is akin to the opposite of a traditional mortgage. With a reverse mortgage, you’re able to borrow against the equity in your home without the necessity of a monthly payment. As long as you still live in the property, you’ll receive monthly payments. The loan is repaid when the house is sold.
Still, because reverse mortgages are a unique and often misunderstood way of earning income from your property, understanding what to expect isn’t always straightforward. Seniors who are interested in applying for a reverse mortgage should know what to expect. With that in mind, here’s what you need to know:
Understanding Eligibility Requirements
Like any loan, there are several requirements for a reverse mortgage. The two primary personal requirements are that you’ll need to be 62 years of age or older and have at least 50% equity in your home. The home you would like to take a reverse mortgage out for must also be your primary residence; therefore, vacation rental property would not qualify.
Potential applicants are also required to meet with a Department of Housing and Urban Development (HUD)-approved counselor who specializes in reverse mortgages. This counseling session helps seniors understand the pros and cons of reverse mortgages, as well as how a reverse mortgage could be beneficial for the applicant in particular.
The goal of a reverse mortgage counselor is to ensure you’re well-informed before you make a decision and confident in the next steps. Ultimately, you’ll leave the session feeling more knowledgeable about reverse mortgages and with a better understanding of loan terms.
How Much Can You Get?
The amount of money you can borrow for a reverse mortgage depends on several factors, including how much equity you currently have in your home, your age, interest rate, and current home value. Generally speaking, borrowers cannot exceed more than 80% of the home’s equity (based on this calculator).
Several Payout Methods
Although reverse mortgages are associated with monthly payments given to homeowners, applicants can choose from a variety of different payment methods. You can choose to receive your payment in a large lump sum when the loan closes, receive equal monthly payments from the lender, a line of credit, or hybrid payout options. Having these different options allows you to choose based on how much money you need now and what your long-term financial situation looks like.
Pros and Cons of Reverse Mortgage
With every major financial decision, you should weigh the pros and cons. The primary pro of a reverse mortgage is that it allows seniors to better manage their expenses throughout their retirement years. Retirees will continue to be able to pay bills and supplement their income. For many people, mortgages are their biggest expense; eliminating that from a monthly budget gives seniors much more flexibility and freedom.
Furthermore, seniors don’t have to worry about moving or downsizing in order to lower their monthly costs. They can age in place without compromising their property and won’t have to pay taxes on the income received from the reverse mortgages.
One of the primary cons is that the application process can be costly. To receive a reverse mortgage, you’ll need to pay lender fees, closing costs, and FHA insurance charges. Reverse mortgages can also interfere with state benefits you may be receiving, such as Supplemental Security Income (SSI) programs and Medicaid. Lastly, if you’re struggling to pay homeowners insurance or property taxes, your property is not exempt from foreclosure, which could cause other issues for you.
You Can Still Owe Money on Your Existing Mortgage
Many seniors falsely assume they won’t be able to apply for a reverse mortgage because they still owe money on their current mortgages. But this is necessarily true. You may still be eligible for a reverse mortgage, even if you owe money on a traditional mortgage. In this case, the funds from your reverse mortgage would first go towards paying off those balances before you begin receiving regular monetary payments. Reverse mortgage payments will also cover eligible existing liens before handing over monthly checks to the homeowner.
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A reverse mortgage is a financial product that allows seniors to convert part of their home equity into cash without having to sell their home or make monthly mortgage payments.
To qualify for a reverse mortgage, borrowers must be at least 62 years old and have a significant amount of equity in their home, typically at least 50%.
The main advantages include access to cash without monthly payments, the ability to stay in one's home, and no tax liability on the funds received.
A HUD counselor is a professional approved by the Department of Housing and Urban Development who provides guidance to seniors considering a reverse mortgage.
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