A Reverse mortgage (HECM) lets you convert part of your home’s equity into cash, monthly payments, or a line of credit with no required monthly mortgage payment. The loan becomes due when you move out, sell, or pass away. The most common reverse mortgage is the HECM (FHA-insured). However, you need to meet certain requirements to qualify.
Who can qualify for a reverse mortgage?
To qualify for a reverse mortgage, you must meet the criteria below:
- You must be 62 or older.
- The home must be your primary residence.
- Property taxes, homeowner insurance, and maintenance must be current.
- You must complete HUD-approved counseling and receive a certificate before application.
What it costs (and why)
- FHA Mortgage Insurance Premium (MIP): Upfront 2% of the home value up to the MCA, then 0.5% per year on the outstanding balance. (FHA standardized the 2% upfront in 2017 to stabilize the program.)
- Origination fee: Up to $6,000 (formula: $2,500 minimum; 2% of first $200k of value + 1% above $200k, capped at $6k). Often financed into the loan.
- Other costs: Appraisal, title, recording, and potential servicing fees (HUD caps servicing at $30–$35/mo depending on rate type).
Why MIP exists: It funds non-recourse protection so you (or your heirs) never owe more than the home’s value when the loan is due.
How payouts work (choose one or mix)
- Line of credit (grows with the loan’s interest rate + MIP rate).
- Monthly payments:
- Tenure (for as long as you live in the home), or
- Term (fixed period).
- Lump sum (commonly a fixed-rate HECM; typically requires taking all funds at closing).
When a HECM makes sense (and when it doesn’t)
Reverse mortgage makes sense if:
- Plan to age in place 3–5+ years,
- Have most of your assets in home equity,
- Need a standby line of credit for emergencies or to reduce portfolio withdrawals in down markets.
Probably not a fit if you:
- Struggle to keep up with taxes, insurance, or maintenance,
- Plan to move soon or want to leave maximum equity to heirs,
- Haven’t compared downsizing/HELOC/sale.
Avoid the pitfalls (mini playbook)
- Start with counseling (independent, HUD-approved): 800-569-4287. Ask about all alternatives.
- Shop multiple lenders (fees and margins vary).
- Decide payout type (LOC vs monthly vs lump sum).
- Read the fee sheet: upfront MIP, annual MIP, origination (≤$6k), third-party fees.
- Loop in your heirs—explain the 95% option and timelines so there are no surprises later.
The math
- Home value: $600,000 (but MCA caps eligible value at $1,209,750 in 2025, so you’re under the cap).
- Upfront MIP: 2% × $600,000 = $12,000 (financed).
- Annual MIP: 0.5% of the outstanding balance.
- Origination fee: Formula-based, capped at $6,000.
FAQs
Do I lose my home with a reverse mortgage?
No. You keep title. The loan comes due when you move out, sell, or pass away. You must pay taxes/insurance and maintain the property. HUD
Is counseling mandatory?
Yes. You must complete HUD-approved counseling and receive a certificate before applying. Call (800) 569-4287 to find an agency. HUD
What’s the 2025 borrowing cap?
FHA’s MCA is $1,209,750 for case numbers assigned in 2025. Your exact principal limit depends on age, rates, and home value. HUD
What protects my heirs?
HECMs are non-recourse; heirs can sell for ≥95% of current appraised value or keep the home by paying the lesser of the balance or 95%. HUDeCFR
How big are the fees?
Expect 2% upfront MIP, 0.5% annual MIP, normal closing costs, and an origination fee up to $6,000 (per HUD rules). Shop lenders for margins and credits.
Discover more from
Subscribe to get the latest posts sent to your email.