Why Is It Called a Reverse Mortgage?
With a traditional mortgage, you borrow money, then you make monthly payments, and the loan balance generally decreases over time.
With a reverse mortgage, the concept is reversed: you borrow against existing home equity, you generally do not make monthly mortgage payments, interest and fees are added to the balance, and the balance generally grows over time.
Traditional Mortgage
- You borrow money.
- You make monthly payments.
- The loan balance generally decreases over time.
Reverse Mortgage
- You borrow against existing home equity.
- You generally do not make monthly mortgage payments.
- Interest and fees are added to the balance, which generally grows over time.
That is the “reverse” concept.
Does the Bank Own Your Home?
No.
This is one of the most persistent myths about reverse mortgages. You continue to hold title to the home. The lender has a security interest, similar to other mortgages.
The CFPB specifically confirms that title remains with the homeowner.
How Do You Receive the Money?
Depending on the HECM structure and current program rules, proceeds may potentially be available through forms such as:
- Lump sum
- Line of credit
- Monthly advances
- Combination of options
Not every option is available with every interest-rate structure. The lender and the HUD-approved counselor should explain the actual choices.
What Happens to the Loan Balance?
Suppose the initial HECM balance is $200,000. Over time, interest accrues, mortgage-insurance charges may accrue, and additional advances may be taken. The loan balance can grow. Meanwhile, the home's value may also change.
Your remaining equity is roughly:
HOME VALUE
minus
REVERSE MORTGAGE BALANCE
minus
OTHER LIENS / SELLING COSTS
Are You Giving the Bank Your Equity?
Not exactly. You are borrowing against the equity. But because the loan balance increases over time, the amount of equity remaining for you or your heirs may decline. That is an important tradeoff.
When Does a Reverse Mortgage Have to Be Repaid?
A HECM generally becomes due when qualifying circumstances occur, such as:
- Home is sold
- Last borrower dies
- Property is no longer the borrower's principal residence
- Borrower moves permanently from the home
- Certain loan obligations are not met
The CFPB also notes that extended absence from the home, including more than 12 consecutive months in certain healthcare facilities when no protected occupant remains, can cause the loan to become due.
Do You Still Pay Taxes and Insurance?
Absolutely.
A reverse mortgage does NOT eliminate property taxes, homeowners insurance, HOA dues, maintenance, repairs or utilities.
Failure to meet required property obligations can lead to default and potentially foreclosure.
Why Would Someone Use a Reverse Mortgage?
Possible reasons include:
- Supplement retirement income
- Pay off an existing mortgage
- Increase monthly cash flow
- Establish a line of credit
- Cover major expenses
- Remain in the home longer
- Purchase another principal residence through HECM for Purchase
What Are the Downsides?
Potential disadvantages include:
- Loan balance grows
- Remaining equity can decline
- Upfront costs can be significant
- Mortgage insurance applies to HECMs
- Heirs may receive less equity
- Property obligations continue
- Loan can become due if occupancy requirements are not met
A Worked Example
Hypothetical example
Home value
$700,000
Existing mortgage
$100,000
An eligible homeowner obtains a HECM. Part of the HECM proceeds pays off the existing $100,000 mortgage. The homeowner now no longer makes the traditional $100,000 mortgage payment, but the HECM balance grows over time.
The homeowner still pays taxes, insurance, HOA dues if any, and maintenance. Figures are hypothetical for illustration only; actual principal limits, rates and proceeds are set quarterly by HUD and your lender.
A Reverse Mortgage Is Not Automatically Good or Bad
It is a financial tool. For one homeowner it may meaningfully improve retirement cash flow. For another, selling, downsizing, or using a different equity strategy may preserve more wealth.
The right decision depends on your age, equity, income, housing goals, estate goals, future moves, property costs and family plans.
How Lisa Helps
Lisa can help with the real estate portion: estimate market value, compare staying versus selling, evaluate downsizing, search for a new HECM-for-Purchase property, estimate seller proceeds, and coordinate with the reverse-mortgage lender. Lisa is a REALTOR®; she does not recommend or originate the HECM itself. Qualification, principal limits, interest rates, mortgage insurance, counseling, and loan terms are determined by a licensed HECM lender and current HUD rules.
