A loan for homeowners 62+ that lets them borrow against home equity without monthly payments. The loan is repaid when the homeowner sells, moves, or passes away.
A reverse mortgage is a specialized loan for homeowners age 62 or older. Instead of making payments to the lender, the lender makes payments to you — either as a lump sum, monthly payments, or a line of credit — against the equity in your home.
The loan doesn't have to be repaid until you sell the home, move out permanently, or pass away. At that point, the loan balance (which has grown over the years with accumulated interest and fees) is paid from the home's sale. If the sale doesn't cover the balance, the FHA insurance that backs most reverse mortgages (called HECM — Home Equity Conversion Mortgage) covers the shortfall.
Reverse mortgages can be a useful tool for retirees with significant home equity and limited liquid savings. They're also complex — fees can be substantial, and there are real risks to heirs and surviving spouses. Always work with a HUD-approved counselor before signing.
Example
A 72-year-old homeowner with a paid-off $500K home takes out a HECM and receives $250K as a line of credit. They draw $40K to renovate, and the rest grows in availability over time. The loan is repaid when the home is eventually sold.
Also known as
HECM, Home Equity Conversion Mortgage, senior reverse mortgage
Source:
HUD HECM