What is a reverse mortgage?

Core Insights - A reverse mortgage is a financial product designed for senior homeowners to convert home equity into cash, with eligibility based on home ownership and mortgage balance [1][2] Group 1: Reverse Mortgage Mechanics - A reverse mortgage allows homeowners to receive money from lenders instead of making monthly payments, using the home as collateral [2] - The loan does not need to be repaid while the homeowner resides in the house, but repayment is required upon selling the house, death, or moving out for over 12 months [3] Group 2: Types of Reverse Mortgages - The most common type is the Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA), with a maximum claim amount of $1,249,125 for 2026 [4] - Proprietary reverse mortgages from private lenders are available for homes valued above the HECM limit, while single-purpose loans are offered by government or nonprofit organizations for specific uses [6][7] Group 3: Eligibility Requirements - To qualify for a HECM, borrowers must be at least 62 years old, fully own the home or have a low mortgage balance, live in the home as a primary residence, and not owe federal taxes or student loans [8] Group 4: Borrowing Limits and Costs - The principal limit for borrowing is influenced by the borrower's age, home value, and interest rates, with older borrowers able to access more funds [10][11] - Initial costs include loan origination fees and a 2% upfront mortgage insurance premium, while ongoing costs consist of interest and an annual mortgage insurance premium of 0.5% [20][21] Group 5: Payment Options and Benefits - Reverse mortgage proceeds can be received as a lump sum, monthly payments, or a line of credit, catering to different financial needs [12][17] - The money received is generally tax-free and does not affect Social Security or Medicare benefits [11] Group 6: Pros and Cons - Benefits include retaining home title, no repayment until moving or death, and the ability to access home equity [25][26] - Drawbacks involve potential loss of home equity and complications for heirs regarding repayment [26][27]