Reverse mortgages explained — when the house becomes the funding source
This article is for educational purposes only and does not constitute medical, legal, or financial advice. Every family situation is different, and you should consult with appropriate professionals about your specific circumstances.
Your parent owns their home. It's worth $400,000 or $600,000 or maybe more. But they need money now for care, and their liquid savings won't last. You've heard the term "reverse mortgage" thrown around, and you're wondering if it might be part of the answer. Everyone seems to have an opinion about it—some say it's a lifesaver, others warn you away like it's a trap. The truth is both simpler and more complicated than the hype.
A reverse mortgage is a specific financial tool with specific uses. For some families, it's exactly what they need. For others, it creates more problems than it solves. The reason you're reading this is to understand which category your parent falls into. Not to be scared of it, and not to jump into it without understanding what it actually is and what it costs.
The hardest part isn't understanding how a reverse mortgage works. It's understanding when it makes sense for your family, what other options you should consider first, and what questions to ask before you sign anything. That's what this article is actually about.
Understanding What a Reverse Mortgage Actually Is
A reverse mortgage is a loan against your parent's home equity. That's it. Your parent borrows money from a lender, and the lender holds a claim against the house. The loan doesn't need to be repaid while your parent lives in the house. When your parent moves out or passes away, the loan gets paid back from the sale of the home, or the estate covers it.
The difference from a regular mortgage is the direction of the payment flow. With a regular mortgage, your parent makes monthly payments to the bank. With a reverse mortgage, the bank makes payments to your parent. Your parent gets money, and the loan balance grows instead of shrinking.
Here's the practical reality: your parent receives cash. They can take it as a lump sum, a monthly payment, a line of credit they draw from as needed, or a combination. They keep living in their house. The debt sits quietly in the background, growing larger because they're not making payments toward it. When they no longer live there—because they've moved to assisted living or a nursing facility, or because they've passed away,the house gets sold, the loan gets paid off from the proceeds, and whatever is left goes to the estate.
The most common type is a Home Equity Conversion Mortgage (HECM), which is federally insured. This is important because the insurance protects your parent if something goes wrong with the lender. There are also proprietary reverse mortgages, which work slightly differently and have higher loan limits for homes worth more than $822,375. And there are single-purpose reverse mortgages offered by some local or state programs, usually for lower amounts and specific purposes like home repairs or property taxes.
How Much Money Can Your Parent Actually Get
The amount depends on your parent's age, the value of their home, and current interest rates. Generally, the older your parent is, the more they can borrow. A 62-year-old might be able to borrow 20 to 30 percent of their home's equity. An 85-year-old could borrow 50 to 60 percent. If your parent's house is worth $500,000 with no mortgage, a 75-year-old might access $150,000 to $200,000.
But there are costs baked into this. Reverse mortgages aren't free. There's an origination fee (typically 1 to 2 percent of the loan amount), an appraisal fee, a credit check fee, and insurance premiums. For a $150,000 reverse mortgage, you might pay $3,000 to $5,000 in upfront costs. These costs often get rolled into the loan, so your parent doesn't pay them out of pocket, but they do reduce the amount your parent actually receives. If your parent borrows $150,000 with $5,000 in costs built in, they actually get $145,000.
Then there's the interest rate, which compounds over time. Interest rates on reverse mortgages are variable or fixed, depending on the type. A variable rate might start around 6 percent but can change monthly. Interest accrues each month and adds to the loan balance. If your parent takes out $150,000 at 6 percent interest and doesn't touch it for 10 years, the balance could grow to $270,000 before the loan is paid back.
The line of credit option works differently. Your parent gets access to a certain amount of money they can draw from as needed. If they don't use it, interest doesn't accrue on the unused portion. Some families like this because it provides a safety net without committing to take out all the money at once.
What Your Parent Still Needs to Do
Here's the part that catches people off guard: getting a reverse mortgage doesn't eliminate your parent's obligations as a homeowner. Your parent still needs to pay property taxes, maintain homeowner's insurance, make necessary repairs, and keep the property in reasonable condition. If your parent doesn't do these things, the lender can call the loan due immediately.
This matters because some seniors take out a reverse mortgage thinking it's going to solve all their problems, and then they struggle to pay property taxes or keep insurance current. That's a real risk. If your parent's fixed income barely covers basic living expenses, a reverse mortgage won't help if they can't manage the other costs of homeownership.
There's also the question of what happens if your parent gets seriously ill and needs to move to a facility. This is where reverse mortgages become complicated. If your parent moves to assisted living, they're still technically living in the house. But if they move to a nursing facility and don't return home for more than 12 months, the loan becomes due. Your family would need to either sell the house to pay it off or refinance. If your parent moves back home from the nursing facility for a day or two, that 12-month clock resets. But if they don't come back, you've got about a year to figure out what to do.
Understanding Your Parent's Specific Situation
Before your parent even talks to a reverse mortgage company, you need to answer some basic questions. Is your parent going to stay in this house long-term, or is there a real possibility they'll need facility care within the next few years? If facility care is likely soon, a reverse mortgage is probably the wrong tool because you'll face the 12-month deadline question.
How much does your parent actually need to access? If they need $20,000 for a specific care expense, a reverse mortgage might be overkill when other options exist. If they need $150,000 to $200,000 to fund care for several years, and they have home equity but little liquid savings, then a reverse mortgage starts to make sense.
What does your parent want to happen to the house? Some parents treat their home as the inheritance for their kids. Some don't care what happens to it. If inheritance matters to your parent, they need to understand that a reverse mortgage reduces the equity available to pass on. If they're okay with this, fine. If they're not, this changes the equation.
Is your parent's thinking clear, or are they showing signs of cognitive decline? This matters because reverse mortgage companies are required to ensure your parent understands what they're signing, but the onus is partly on your family to watch for predatory situations. If your parent has memory issues or isn't making sound decisions, this is a vulnerability.
Taking Next Steps
If a reverse mortgage seems like it might help, the first step is actually a required counseling session. Your parent will need to meet with a HUD-approved counselor (at no charge) who explains how reverse mortgages work, what the costs are, what alternatives exist, and what the long-term implications are. This counselor doesn't work for the lender. They work for you. Take this seriously. If something doesn't make sense in that session, push back.
After counseling, if your parent wants to proceed, they'll need to choose a lender and get a formal application. At this point, it's worth getting a second opinion. Not from the reverse mortgage company, but from your parent's financial advisor, attorney, or accountant. Ideally, someone who doesn't have a financial incentive to push your parent into this decision. Ask that person: given my parent's situation, does this make sense?
Get a written statement from the lender showing exactly how much your parent will receive, what all the costs are, what the interest rate is, and under what circumstances the loan becomes due. Read this carefully. Ask questions about anything that's unclear.
If your parent decides to move forward, document everything. Keep copies of all agreements, disclosure forms, and correspondence. These matter later if questions come up about what was promised versus what's actually happening.
Living With the Decision
Once a reverse mortgage is in place, your parent's life doesn't dramatically change. They're still in their house, still paying their bills. The loan sits there growing quietly in the background. For some families, this is exactly what they needed,a financial cushion that lets their parent stay home longer and stay more independent.
For other families, it becomes a source of stress. If property taxes go up or insurance becomes more expensive, your parent struggles. If your parent's health declines and they need to move to a facility, the family faces the 12-month clock and needs to figure out next steps quickly.
The key is understanding going in what you're actually getting, what it costs, and what happens next. A reverse mortgage is a tool. It's not good or bad in itself. It's either right for your parent's situation or it isn't.
How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation. If you are concerned about a loved one's cognitive health or safety, consult with their healthcare provider or contact your local Area Agency on Aging for guidance and support.