What is a reverse mortgage and how does it work?

A reverse mortgage is a type of loan available to homeowners aged 62 and older that allows them to convert a portion of their home equity into cash. Instead of making monthly payments to the lender, the lender makes payments to the homeowner. The loan is repaid with interest when the homeowner sells the home, moves permanently into a care facility, or passes away. At that point, the home is sold to repay the loan balance, and any remaining equity goes to the homeowner or their heirs.

What is a HECM and how is it different?

HECM stands for Home Equity Conversion Mortgage, which is the reverse mortgage program insured by the Federal Housing Administration (FHA). HECM is the most common type of reverse mortgage and offers several protections: non-recourse loans (you never owe more than the home's value), standardized pricing, and financial counseling requirements. The FHA insurance fund covers losses if the loan balance exceeds the home value at repayment.

What are the age and eligibility requirements?

To qualify for a HECM reverse mortgage, you must be at least 62 years old, own your home outright or have a low mortgage balance, and use the home as your primary residence. You must also complete a HUD-approved counseling session. There are no credit score or income requirements, but you must demonstrate the ability to pay property taxes, insurance, and maintenance costs.

How much cash can I get from a reverse mortgage?

The amount available depends on your age, home value, and current interest rates. The principal limit factor (PLF) increases with age — the older you are, the more you can access. For example, at age 62 the PLF is about 55.5% of the home value, while at age 75 it's about 69.5%. You can receive funds as a lump sum, monthly tenure payments, a line of credit, or a combination.

What are the costs of a reverse mortgage?

Reverse mortgages have several costs: an upfront MIP of 2% of the max claim amount, monthly MIP of 0.5% annually, lender fees, origination fees, and closing costs (title, appraisal, etc.). These costs are typically financed into the loan rather than paid out of pocket. The total cost can be substantial, so it's important to weigh the benefits against the expenses.

What happens to my equity when I get a reverse mortgage?

A reverse mortgage converts your home equity into a loan. As you receive payments and interest accrues, your equity decreases. However, your home may appreciate in value, which can offset some of the equity depletion. When the loan becomes due, the sale proceeds repay the loan balance, and any remaining equity goes to you or your heirs. The non-recourse feature means you never owe more than the home's appraised value.

Can I still leave my home to my heirs?

Yes, you can leave your home to your heirs. When you pass away, your heirs have 30 days to decide whether to repay the loan (keeping the home) or sell it. If the home is worth more than the loan balance, they keep the equity. If the loan balance exceeds the home value, the FHA insurance covers the loss, and your heirs are not responsible for the difference (non-recourse).

Is a reverse mortgage right for everyone?

No. Reverse mortgages are best suited for homeowners who plan to stay in their home long-term, have substantial equity, and need supplemental income for retirement expenses. They may not be ideal if you plan to move soon, have a low home value, or want to preserve maximum equity for heirs. Consider consulting a financial advisor to evaluate whether a reverse mortgage fits your retirement plan.

Reverse Mortgage Calculator

A reverse mortgage calculator is a free online tool that estimates your HECM reverse mortgage options. It shows line of credit, tenure payment, and lump sum based on your age, home value, and current rates. Free, no sign-up required.

Reverse Mortgage (HECM) Details

Home Value?Enter your home value.

Age?Enter your age.

Interest Rate

End of inputs

Reverse Mortgage Results

Home Value

$500,000.00

Current market value

Max Claim Amount

$330,000.00

66.00% of home value

Net Principal Limit

$323,400.00

After upfront MIP

Upfront MIP

$6,600.00

2% of max claim

Monthly MIP

$137.50

0.50%/yr

Total Debt Limit

$323,400.00

Maximum loan available

Line of Credit

$323,400.00

Flexible access, grows over time

Tenure Payment

$944.22

Monthly income for life in home

Lump Sum

$194,040.00

One-time cash payment

Equity Over Time

Key Insights

Your upfront MIP of $6,600.00 (2% of the max claim amount) is a significant closing cost. This is financed into the loan rather than paid out of pocket, but it reduces your available equity. Consider whether the benefits of a reverse mortgage outweigh these costs.

Your tenure payment of $944.22 provides a steady monthly income supplement that lasts for as long as you live in the home. This is an annuity-like feature that can help cover living expenses or healthcare costs without depleting your remaining savings.

Your line of credit of $323,400.00 gives you flexible access to funds. You can draw on it as needed for living expenses, healthcare, or home improvements. Unused portions of the line of credit grow over time, providing a growing source of liquidity.

You are accessing 66.00% of your home's equity through the reverse mortgage. This is a moderate drawdown that leaves reasonable equity remaining, especially if your home appreciates over time.

The HECM program is administered by the FHA and is the most common type of reverse mortgage. It is designed for homeowners aged 62+ who have paid off most or all of their mortgage. The loan is repaid when the homeowner sells the home, moves permanently, or passes away.

HECM Note:This is a non-recourse loan insured by the FHA. You never owe more than the home's value. The loan is repaid when you sell, move permanently, or pass away.

Guide

How to Use This Calculator

1Enter your home's current market value.
2Select your age — this determines the principal limit factor.
3Enter the current interest rate for HECM loans.
4Review the results to see your maximum claim amount, net principal limit, and available payment options.
5Compare lump sum vs. tenure payment vs. line of credit to see which suits your needs.
6Use the AI insights to understand how age, costs, and equity depletion affect your decision.

Formula

How It's Calculated

Reverse mortgage (HECM) calculation:

1. Principal Limit Factor (PLF) based on age:
   • Age 62: 55.5%  • Age 65: 58.4%  • Age 70: 63.8%
   • Age 75: 69.5%  • Age 80: 75.7%  • Age 90: 88.6%

2. Max Claim Amount = Home Value x PLF

3. Upfront MIP = Max Claim Amount x 2%
   Net Principal Limit = Max Claim Amount - Upfront MIP

4. Monthly MIP = Max Claim Amount x 0.5% / 12

5. Payment options:
   • Line of Credit = Net Principal Limit (grows over time)
   • Lump Sum = Net Principal Limit x 60%
   • Tenure Payment = Principal limited by life expectancy

Example: $500,000 home, age 72, 6.5% rate:
  • PLF (age 72) = 66%
  • Max Claim = $500,000 x 0.66 = $330,000
  • Upfront MIP = $330,000 x 0.02 = $6,600
  • Net Limit = $330,000 - $6,600 = $323,400
  • Line of Credit = $323,400
  • Lump Sum = $323,400 x 0.6 = $194,040
  • Tenure Payment = ~$2,073/month (based on life expectancy)

Glossary

Key Terms

FAQ

Frequently Asked Questions

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