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What is a Reverse Mortgage and How Does it Work?

Guest Blogger November 30, 2025

If you’re a homeowner who’s nearing retirement or already retired, you might be facing a common problem: your home is valuable but your income is limited.

With a reverse mortgage, you can potentially solve that problem. Reverse mortgages let you cash out some of the value of your home (also known as equity) and repay it when you sell the home or pass away. 

But not so fast! Reverse mortgages can be risky and confusing. As a former HUD-certified housing counselor and NFCC-certified credit counselor, here’s what I want you to know before you take on a reverse mortgage. 

What is a reverse mortgage? 

A reverse mortgage works the opposite way a traditional mortgage works. While a traditional mortgage involves making monthly payments to the bank, a reverse mortgage gives the homeowner a loan from the home’s equity. There are no payments required with a reverse mortgage, but the money has to be paid back when the owner moves, sells the home or passes away.

Who qualifies for a reverse mortgage? 

You have to meet specific requirements to qualify for a Home Equity Conversion Mortgage (HECM), which is the most common type of reverse mortgage. The requirements include:

  • Age: The youngest homeowner must be at least 62 years old.
  • Affordability: You must be able to cover all taxes, insurance and fees for the property.
  • Residence: The home must be your primary residence.
  • Condition: Your home has to be in good condition. 
  • Equity: Most or all of your previous mortgage is paid off.

On top of that, HUD’s Federal Housing Administration (FHA) requires you to complete a counseling session with a qualified financial counselor. During the session, your counselor will review your financial situation and determine if a reverse mortgage could work for you.

Reverse mortgage pros and cons

A reverse mortgage can give you the cash you need to pay off credit cards and other debt or just enjoy your retirement. But what many borrowers don’t realize is that taking out a reverse mortgage can prevent your loved ones from inheriting your home. 

Here’s what I would encourage anyone to consider before taking out a reverse mortgage.

Reverse mortgage pros

  • Tap into your home’s equity and use the money as you wish.
  • You can qualify with bad credit.
  • At around 7.00% and up, interest rates are lower than most other loans.
  • No monthly mortgage payments are required.
  • The funds can help you cover property taxes.

Reverse mortgage cons

  • Origination fees can reach up to $6,000.
  • The borrower has to pay closing costs.
  • The borrower has to pay an annual mortgage insurance premium of up to 0.5% of the remaining loan balance.
  • Over time, interest charges increase the amount owed to the lender.
  • Your family may have to sell the home to pay back the debt.
  • You’ll face foreclosure if you fall behind on property taxes or homeowners insurance.
  • If you still have a prior mortgage, you will need to pay it off with the reverse mortgage.
  • Reverse mortgage scams are common.

How much can you borrow with a reverse mortgage?

The amount of money you can receive from a reverse mortgage depends on several factors, including your age and the interest rate on the loan. However, lenders can offer up to $1,209,750 for those who qualify.

Is this the right choice for you? Reverse mortgages are great for homeowners who need cash and don’t want to leave their property to heirs. But if you can’t afford to maintain property taxes and insurance, taking on a reverse mortgage can be harmful. 

The most important thing to remember is that you shouldn’t take on a loan unless you fully understand the terms and conditions. If you’d like professional help navigating your options as a homeowner, an NFCC-certified housing counselor is just a phone call away!

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