Reverse Mortgage Explained: What Retirees Should Know in 2025

Last updated August 19, 2025

A reverse mortgage allows homeowners who are at least 62 years old to use home equity to supplement their retirement income. Reverse mortgages, also called home equity conversion mortgages or reverse home loans, aren’t like conventional forward mortgages in that you do not make monthly mortgage payments. So, what is a reverse mortgage, exactly?

How does a reverse mortgage work?

As ReverseMortgageAlert.org describes, “the borrower receives payments from the lender and does not need to make payments back to the lender as long as he or she lives in the home and continues to fulfill basic responsibilities, such as payment of taxes and insurance.” As time goes on, the loan balance and interest grows, while home equity decreases.

This option is often widely misunderstood by homeowners, and that might explain why it’s been consistently on the decline in the U.S. in the past few years — in 2022, the number of homeowners with a reverse mortgage was 64,489, dropping to 32,991 in 2023 and 26,521 in 2024.

David Peskin, the president of Reverse Mortgage Funding, LLC, said he’s seen a 67% jump in application volume across the industry.

“Our customer is the older homeowner that is in their retirement, and their retirement just got pummeled by about 20% or 30%,” he explained. “Our customers are thinking, ‘I should be accessing the equity in my home versus trying to sell off my position or live off my retirement with the notion that over time, it’ll come back.”

Experts believe that the knowledge deficit that existed when reverse mortgages first hit the market has been addressed, leading to fewer cases of cold feet.

“Over the years, what I’ve noticed, especially with borrowers in that 62 to 72 range now, they’re coming in a lot more educated than they had previously been on the product,” Paul Fiore, chief retail sales and operations officer at AAG, told HousingWire. “They’ve done a lot of research, probably online, looked into different things and different aspects of the product. So, they’re coming in more educated, at least in the fundamentals of the loan.”

There are three types of reverse mortgages:

Single-purpose reverse mortgages

This option is typically the least costly, but it has restrictions and might not be the easiest to come by. As the name suggests, the lender dictates the purpose of the loan — for example, to pay property taxes or take care of home repairs. While the qualification criteria makes it fairly easy for most homeowners with low-to-moderate income to get approved, they aren’t very widely available, mainly offered by state and local governments and select nonprofits.

Proprietary reverse mortgages

These are private loans that are funded by the companies that create them. This may be a better choice if you own a high-value home, as you have the potential to receive a higher loan amount than you would with other types of reverse mortgages, especially if your mortgage balance is low.

Home Equity Conversion Mortgages (HECMs)

HECMs are backed by the U.S. Department of Housing and Urban Development (HUD) and are federally insured. There are a few advantages to HECMs: there isn’t a firm income requirement, and unlike single-purpose mortgages, they can be used for any reason. However, they tend to be pricier than old-fashioned home equity loans in terms of both total costs and upfront fees.

Reverse Mortgage Pros

While they may not be the most common home financing option, a reverse mortgage has advantages that make it a good fit for some homeowners. These include:

• No mortgage payments: A reverse mortgage allows retirees on fixed incomes to stay in their home — with no monthly mortgage payments. The entire loan comes due at the end of the term, generally when the homeowner dies or moves out.
• Immediate cash: Many families have little to no retirement savings, according to the U.S. Government Accountability Office. If you’re in a similar boat but have equity in your home, a reverse mortgage can help eliminate or mitigate cash flow issues that can crop up once you’ve stopped working.
• Bigger Social Security benefits: A reverse mortgage can allow you to delay drawing on your Social Security, helping you reap bigger benefits down the road. As the Internal Revenue Service lays out, you can get 100% of your benefits at age 66. But you can get 132% of your benefits if you wait to draw funds until age 70.

See how Reverse Mortgages compare to home equity loans, refinances, and other financial products in our Home Equity Investments 101 Guide.

Reverse Mortgage Cons

Along with the advantages, there are drawbacks to reverse mortgages as well, such as:

• High fees: According to Reverse.org, reverse mortgage fees are typically higher than those of a traditional mortgage. For example, there’s an initial Federal Housing Administration (FHA) mortgage insurance premium of 2% of the home value, up to $13,593, plus ongoing FHA premiums of 0.5% of the outstanding mortgage balance.
• Inability to move: You may not have plans to move. But, as Investopedia cautions, if you have to move into a nursing home or assisted living facility for more than 12 consecutive months, it’s considered a permanent move. Since lenders require you to live in the home you’re borrowing against, you’ll need to pay back the reverse mortgage. If you can’t, then the lender will foreclose on your home. “When the money runs out, you can’t borrow any more. You can’t dip into that well,” warns Bruce McClary of the National Foundation for Credit Counseling. “And often times what happens is this leaves seniors with their back up against the wall with one less financial option and a home to maintain…it is a back pocket option, and I would say that people should probably save it as something that’s more like a last resort.”
• Inheritance is tricky: If you’re hoping to keep your home in your family, your heirs will have to repay the loan balance. Reverse Mortgage Funding says that the loan is traditionally paid off by selling the home or refinancing through a traditional mortgage. “There are provisions that allow family to take possession of the home in those situations, but they must pay off the loan with their own money or qualify for a mortgage that will cover what is owed,” McClary adds. And while a reverse mortgage refinance is possible, it’s quite uncommon and requires that very specific criteria be met first.

Avoiding Reverse Mortgage Scams

While reverse mortgages can be a good fit for some, scammers can take advantage of their somewhat complicated nature to try and ____ money from homeowners. Common scams target senior citizens who are at risk of foreclosure and leave them without a home and reverse mortgage. To protect yourself, steer clear of unsolicited advertisements, don’t sign anything you don’t fully understand, and make sure you consult with your own mortgage professional before making any decisions about reverse mortgages.

Alternatives to a Reverse Mortgage

Reverse mortgages aren’t your only financing option as a homeowner. Unlike reverse mortgages that require you to be 62 years or older, these financing options do not have age restrictions. Plus, you don’t have to fully own your home (or have a very small mortgage) to qualify as you do with a reverse mortgage.

• Home equity instruments: A home equity loan and a home equity line of credit (HELOC) are not the same thing. Although both allow borrowing against the equity in your home, the terms differ. A home equity loan is a lump sum that generally has a fixed rate while HELOC rates are usually adjustable and the amounts are smaller. Both are better suited to filling short-term financial needs.In addition to considering your long- and short-term financial needs, you’ll want to determine the cost of borrowing, taking into account interest and fees.
• Selling your home: If you sell your home — particularly if your mortgage is paid off — and move to a rental property, you can gain a significant bump to your retirement fund. Downsides include monthly rent payments and the loss of property from your estate.
• Home equity investments: For many homeowners, home equity investments or home equity agreements can offer the best of both worlds. Like a reverse mortgage, an HEI eliminates monthly payments. But it also doesn't impact your debt-to-income ratio, and doesn't have the same age requirements as a reverse mortgage.

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Unlike some reverse mortgage options, there aren’t any restrictions on how you can use the money, so you can put it toward whatever is most important to you, from renovating your home, to paying down debt, or diversifying your portfolio. Finally, if you’re worried about qualifying for a reverse mortgage, it may help to know that the requirements for a Hometap Investment are unique from a reverse mortgage and traditional loan options.

You can quickly compare a Hometap Investment and a reverse mortgage using the chart below.

Frequently-Asked Questions

How much money do you actually get from a reverse mortgage?

The amount of money you can receive from a reverse mortgage depends on three primary factors: your age, the interest rate on your loan, and the value of your home. The maximum amount you qualify for is referred to as the “principal limit.”

What is the 95% rule on a reverse mortgage?

The “95% rule” refers to a consumer protection that’s built into all federally-backed reverse mortgages. It states that if your heirs want to retain the home after you pass away — or after you and an eligible co-borrower or non-borrowing spouse move out of the home — they must pay the lesser amount of the total loan balance, or 95% of the home’s current appraised value.

Who owns the house after a reverse mortgage?

With a reverse mortgage, you’re not transferring ownership to the lender — while the lender does place a lien on the property, you retain the property title.

What is the downside of a reverse mortgage?

Like any financial solution, reverse mortgages come with pros and cons. They tend to have higher fees, closing costs, and interest rates than traditional mortgages. In addition, monthly servicing fees and compounding interest can add up, increasing the amount you owe.

How long can you stay in your home with a reverse mortgage?

You can stay in your home as long as you’d like with a reverse mortgage — but the home must remain the primary residence of the borrower for it to remain valid. The mortgage will become due if the borrower passes away or has to move out of the home for a year or longer.

Everyone hopes they’ve set aside enough money to enjoy retirement, but unexpected expenses or a longer lifespan may leave us needing additional sources of income. Carefully consider the pros and the cons of a reverse mortgage to decide where your home fits into your retirement plan based on your goals and your situation.

Tap into your equity with no monthly payments. See if you prequalify for a Hometap investment in less than 30 seconds.