Understanding Reverse Mortgages
What Is a Reverse Mortgage?
A plain-language guide to how reverse mortgages work, who they are for, and what to expect — from a California specialist with 9+ years of experience.
The Basics
The Basics Explained Clearly
A reverse mortgage is a loan that lets qualified homeowners tap equity without selling their home. Borrowers choose how they receive proceeds — either as a lump sum, monthly payments, a line of credit, or a combination.
Unlike a traditional mortgage where you make payments to the lender, a reverse mortgage works in reverse: the lender makes funds available to you. The loan balance grows over time and is repaid when you sell the home, move out permanently, or pass away. As long as you live in the home and meet the loan obligations, you cannot be forced to leave.
Program Types
HECMs and Reverse Mortgages — Is There a Difference?
Government-backed reverse mortgages are called Home Equity Conversion Mortgages (HECM). Not all reverse mortgages are HECMs, but all HECMs are reverse mortgages. Individual lenders also offer proprietary reverse mortgages — the terms of these can vary depending on the lender, and they are not insured by the government.
HECM
FHA-insured, government-backed. Standardized terms, federally regulated, requires HUD-approved counseling. Available to borrowers 62 and older.
Proprietary Reverse Mortgage
Offered by private lenders. Terms vary by lender. Not government-insured. May be available to borrowers as young as 55 in some states, and can access higher loan amounts on high-value homes.
Side by Side
Traditional Mortgage vs. Reverse Mortgage
With a traditional mortgage, borrowers take a specific amount of money to purchase a home and make monthly payments with interest toward the loan balance over a predetermined term — typically 10, 15, or 30 years.
With a reverse mortgage, nothing is due until the loan comes to term. When the last borrower on the loan leaves the home or passes away, the loan comes due. In both cases, the borrower always retains full ownership of the home.
How Is a Cash-Out Refi Different?
Both cash-out refinances and reverse mortgages allow borrowers to borrow against the equity they have built up in their homes. There are a few key differences:
Reverse mortgages are only available to borrowers 62 and older (55+ for some proprietary programs).
Cash-out refis offer a one-time cash payment, while reverse mortgages offer multiple payout options including monthly payments and a line of credit.
With a cash-out refi, you immediately begin making monthly payments. Reverse mortgages only come due when the loan ends.
Step by Step
How Does It Work?
You Apply and Get Approved
I review your age, home value, existing mortgage balance, and equity to determine how much you may qualify for. A HUD-approved counseling session is required for HECM programs.
You Choose How to Receive Funds
Depending on the program, you can receive funds as a lump sum, monthly payments, a line of credit, or a combination — giving you flexibility to match your financial needs.
You Stay in Your Home
You retain ownership and continue living in your home. There are no monthly mortgage payments required. You simply maintain the property and keep taxes and insurance current.
The Loan Is Repaid Later
The loan becomes due when you permanently leave the home, sell it, or pass away. Your heirs can repay the loan and keep the home, or sell the home to settle the balance.
Eligibility
Qualifying for a Reverse Mortgage
To apply for a reverse mortgage, borrowers must certify that they have undergone reverse mortgage counseling through a HUD-approved agency. This ensures the borrower fully understands the terms of their mortgage. In addition to mandatory counseling, the basic requirements are:
Borrower Requirements
Borrowers must be 62 or older for HECMs. Ages for proprietary reverse mortgages can vary — in some states, borrowers can qualify at 55.
Borrowers must be able to meet financial obligations: property taxes, homeowners association dues, insurance, and property maintenance. A financial assessment is conducted as part of the application.
Borrowers must live in the home as their primary or principal residence for the majority of the year, and certify annually that they still reside there.
Borrowers must have substantial equity in the home. Generally, lenders require 50% or more.
What Homes Are Eligible?
Single-family homes are broadly eligible for a reverse mortgage. According to the FHA, this includes:
Manufactured homes and townhomes affixed to a foundation.
Duplexes, triplexes, and fourplexes — if the borrower lives in one of the units.
FHA-approved condominiums. Borrowers can verify approval status on the HUD website.
Buildings with more than five units are considered commercial properties and are not eligible. Rental properties are also not eligible — the home must be the borrower's primary residence. Renting out rooms or units within a qualifying property (up to four units) is permitted.
Staying in Good Standing
Loan Terms and Ongoing Obligations
Because reverse mortgage borrowers do not make required payments until the loan comes due, staying in good standing is relatively straightforward. Borrowers must:
Stay current on property taxes, homeowners insurance, and other home-related fees such as HOA dues.
Live in the home for the majority of the year.
Maintain the home and keep up with necessary repairs.
Sign and return an annual occupancy affidavit within 30 days of receiving it from the loan servicer.
If a borrower fails to comply with the terms of the reverse mortgage, they risk default and the loan may become due and payable. Anyone struggling to meet the terms should communicate with their servicer early.
Costs and Payments
What Do Borrowers Pay?
During the life of the loan, a reverse mortgage requires very little cash out of pocket. While borrowers do not make required monthly mortgage payments, they must keep up with home repairs, insurance, and property taxes.
Income taxes are not levied on reverse mortgage proceeds — the IRS considers them loan proceeds, not income. Borrowers can choose to pay down the balance voluntarily at any time.
At closing, borrowers pay a counseling fee and standard closing costs, many of which can be rolled into the loan proceeds. Interest and mortgage insurance premiums accrue monthly on the loan balance and are not due until the loan comes to term.
Natural Disasters & Unexpected Events
If your home is damaged or destroyed by fire, flood, or another unforeseen event, notify your loan servicer immediately. Adequate insurance coverage is essential. If you intend to rebuild, you can remain in good standing with the reverse mortgage.
Loan Amount
How Much Can You Borrow?
Several factors determine how much money you can borrow through a reverse mortgage: your age, the interest rate offered, the home's appraised value, and how much equity you have. Generally, the older you are and the more equity you have, the more you may qualify for.
Borrowers can receive money as a lump sum, monthly payments, a line of credit, or a combination. The best approach depends on your individual financial situation and retirement strategy.
The 60% Utilization Rule
All HECMs are subject to the 60% utilization rule. This limits the amount any reverse mortgage borrower can take in the first year to the higher of 60% of the principal limit, or mandatory obligations (such as an existing mortgage balance) plus 10% of the loan amount. The remainder of the available principal becomes accessible in the 13th month of the loan.
Fixed vs. Variable
Reverse Mortgage Interest Rates
Reverse mortgages can have fixed or variable rates. Unlike traditional mortgages — where borrowers often prefer a fixed rate — most reverse mortgages carry a variable rate.
Fixed-rate reverse mortgages are available, but they typically do not allow access to as much equity, and they limit borrowers to a single one-time cash payout. Because of the 60% utilization rule, that payout will only be a fraction of what would be available with a variable rate.
The majority of reverse mortgage borrowers opt for the flexibility of a variable rate: multiple payout options, a line of credit that grows over time, and access to more equity overall. Because the loan term is open-ended, borrowers receive an amortization table estimating accrued interest over the life of the loan.
Life Events
How Life Changes Affect a Reverse Mortgage
It is not possible to add or remove a person from an existing reverse mortgage. In cases of death, remarriage, or divorce, the remaining borrower would need to refinance the loan to change who is on it.
Non-Borrowing Spouse Protections
In a married couple where one spouse is not on the reverse mortgage, that person is called a non-borrowing spouse. Legal protections exist to help prevent eligible non-borrowing spouses from being displaced if the borrower passes away or moves into an assisted living facility. However, while the non-borrowing spouse may remain in the home, they no longer have access to remaining loan funds — including funds set aside for taxes and insurance.
In a divorce, whether the non-borrowing spouse remains in the home is determined by the divorce settlement and their attorney. The settlement may allow the non-borrowing spouse to refinance the loan into their own name.
Selling or Refinancing
Selling a home with a reverse mortgage works much like selling with a traditional mortgage — sale proceeds are applied to the reverse mortgage balance, and any remaining money goes to the borrower or their heirs.
Refinancing a reverse mortgage is also possible — typically when a borrower wants to add a new person to the loan (such as after marriage) or when the home has increased substantially in value and they want to access additional equity.
Loan Maturity
What Happens at the End of a Reverse Mortgage?
There are three ways a reverse mortgage can come due:
Options for Heirs
Heirs are not personally responsible for reverse mortgage debt. However, when the mortgage comes due, they must decide how to resolve the balance:
Sell the Home
Heirs can sell the home and apply the proceeds to the outstanding loan balance. Any remaining equity goes to the estate.
Keep the Home
Heirs can keep the home by paying the mortgage balance or 95% of the appraised value — whichever is less. They may refinance the loan, and if they are over 62, a new reverse mortgage may be an option.
Deed in Lieu of Foreclosure
Heirs can sign over the title to the lender. This satisfies the debt and prevents foreclosure.
Do Nothing
If heirs take no action, the lender will foreclose on the home. Working with the servicer to complete the transfer officially is strongly recommended.
Setting the Record Straight
Common Misconceptions — Cleared Up
“The bank owns my home”
You retain full ownership of your home. The reverse mortgage is simply a lien against the property, just like a traditional mortgage.
“I can owe more than my home is worth”
HECM reverse mortgages are non-recourse loans. You or your heirs will never owe more than the home's value at the time of sale, even if the loan balance exceeds it.
“Reverse mortgages are only for people in financial trouble”
Many financially comfortable retirees use reverse mortgages as a strategic retirement planning tool — to preserve investment portfolios, fund long-term care, or improve monthly cash flow.
“My heirs will be left with nothing”
Any equity remaining after the loan is repaid goes to your estate. Heirs also have the option to repay the loan and keep the home.
Your Options
Reverse Mortgage Programs Available
I work with multiple lenders and programs to find the right fit for your situation.
HECM Reverse Mortgage
The most popular FHA-insured program. Ideal for homeowners 62+ who want flexible access to equity.
Learn MoreHECM Line of Credit
Access funds as needed with a growing line of credit — without disturbing your existing first mortgage.
Learn MoreHECM For Purchase
Use a reverse mortgage to buy a new home — with no monthly mortgage payments.
Learn MoreJumbo Reverse Mortgage
For high-value homes that exceed FHA loan limits — access more of your equity.
Learn MoreReverse Mortgage For 55+
A proprietary program that extends eligibility to homeowners as young as 55.
Learn MoreReverse 2nd Mortgage
Keep your low-rate first mortgage and still access your equity — with no monthly payments on the second.
Learn MoreCommon Questions
Frequently Asked Questions
Still Have Questions? Let's Talk.
I have helped California homeowners navigate reverse mortgages for 9+ years. Call today for a no-obligation consultation — no pressure, no commitment, just clear answers.
NMLS #1521694 | CABRE #02040832
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Call Or Email Today For Your Free Loan Consultation
Reach out today for a no-obligation consultation. David will walk you through your options and help you determine the best path forward.
David Simon
Sr. Loan Officer & Reverse Mortgage Specialist
NMLS #1521694 | CABRE #02040832
Cell
(818) 232-1171
[email protected]
Office
Secured Capital Funding
17662 Irvine Blvd. Suite 6
Tustin, CA 92780
NMLS #1649122 | CABRE #01220151
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