How Does a Reverse Mortgage Work, and How Does It Compare to Other Equity Options?
A reverse mortgage lets a homeowner, usually 62 or older, turn equity into cash with no monthly loan payment. Interest adds to the balance until the loan comes due, when you sell, pass away or move out for good. You still have to pay property taxes, insurance and upkeep. A home equity investment also has no monthly payment, but it costs you a share of the home's future value instead of interest.
Last updated September 29, 2026How does a reverse mortgage work day to day?
The lender pays you, as a lump sum, monthly payments or a line of credit, instead of you paying the lender. There's no required monthly payment on the loan. Interest accrues instead, so the balance grows as you draw on your equity. The loan comes due when you sell, pass away or permanently move out, for example into long-term care. Heirs then have a window to pay it off, refinance or sell and keep any equity left. Throughout, you have to keep up with property taxes, homeowners insurance and maintenance; falling behind can put the loan in default.
Who can qualify, and what does counseling involve?
The minimum age for a HECM, the most common reverse mortgage, is 62. Some private reverse mortgages start at 55, depending on the product and state. There's no minimum income, but every applicant goes through a financial assessment of income, assets, credit and history of paying property charges. If you come up short, you may still qualify with a Life Expectancy Set-Aside, money held back from the loan to pay future taxes and insurance. HUD-approved counseling is required before closing. Any existing mortgage is paid off first from the proceeds, so if you owe a lot, there may be little cash left.
How does it compare to a home equity investment?
Both skip the monthly payment. The difference is the cost. A reverse mortgage costs you interest on a growing balance. A home equity investment, sometimes called a home equity agreement, costs you a share of the home's future value, paid when you sell or the agreement ends.
It depends on your situation:
- You already have a reverse mortgage and want more: nothing can be added on top. A HECM line of credit grows over time at the loan's rate plus the annual mortgage insurance premium, about 0.5% a year, regardless of the home's value, so a new appraisal alone won't raise it. To tap a higher value, you'd refinance into a new HECM that meets HUD's benefit test.
- You have a line-of-credit reverse mortgage: in the first 12 months, draws are capped at 60% of your principal limit, or your required payoffs plus 10% if that's more. The rest opens up after the first anniversary.
- Leaving the home to heirs matters most to you: remember the balance grows over time, which leaves less equity behind.
| Minimum age | 62 for a HECM; as low as 55 for some private products |
|---|---|
| Monthly loan payment | None; interest adds to the balance |
| Counseling | HUD-approved counseling before closing |
| Your ongoing costs | Property taxes, insurance, upkeep |
| When it comes due | Sale, death or a permanent move |
| First-year draw limit (HECM) | 60% of the principal limit, or required payoffs plus 10% |
| Existing mortgage | Paid off first from the proceeds |
Related questions
Sources
- https://www.consumerfinance.gov/ask-cfpb/what-is-a-reverse-mortgage-en-224/
- https://www.consumerfinance.gov/ask-cfpb/when-do-i-have-to-pay-back-a-reverse-mortgage-loan-en-236/
- https://www.consumerfinance.gov/ask-cfpb/what-happens-if-i-have-to-move-out-of-my-home-into-a-nursing-home-or-assisted-living-and-i-have-a-reverse-mortgage-en-243/
- https://www.consumerfinance.gov/ask-cfpb/what-happens-my-reverse-mortgage-when-i-die-en-2096/
- https://www.consumerfinance.gov/ask-cfpb/with-a-reverse-mortgage-loan-can-my-heirs-keep-or-sell-my-home-after-i-die-en-242/
- https://www.consumerfinance.gov/ask-cfpb/can-anyone-take-out-a-reverse-mortgage-loan-en-227/
- https://www.hud.gov/hud-partners/single-family-hecmhome
- https://reverse.mortgage/age-requirements
- https://www.financeofamerica.com/education/jumbo-reverse-mortgages/
- https://www.hudexchange.info/programs/housing-counseling/hecm/
- https://www.hud.gov/sites/documents/13-28mlatch.pdf
- https://reverse.mortgage/income-requirements
- https://files.consumerfinance.gov/f/201412_cfpb_reverse_mortgage_guidance.pdf
- https://dfpi.ca.gov/consumers/housing/understanding-home-equity-investments-what-homeowners-should-know/
- https://legalclarity.org/can-you-get-a-second-reverse-mortgage-rules-options/
- https://reverse.mortgage/questions/second-reverse-mortgage
- https://reverse.mortgage/line-of-credit
- https://www.mothebroker.com/blog/hecm-line-of-credit-growth-compound-2026
- https://www.federalregister.gov/documents/2017/01/19/2017-01044/federal-housing-administration-strengthening-the-home-equity-conversion-mortgage-program
- https://reverse.mortgage/60-percent-rule
Sourced from licensed loan officers and brokers in the FreeRateUpdate network.
Educational information only, not individualized financial or legal advice. Program details and rates change; verify current terms with a licensed loan officer before making a decision.