Reverse mortgages explained — when the house becomes the funding source
Reviewed by the How To Help Your Elders editorial team | Updated March 2026
A reverse mortgage lets your parent borrow against their home equity without making monthly payments, but the costs, rules, and risks are more complicated than the TV commercials suggest. This article explains how reverse mortgages actually work, what they cost, and how to decide whether one makes sense for your parent's care situation.
A Reverse Mortgage Is a Loan Against the House, and the Balance Grows Over Time
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.
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.
A reverse mortgage is a loan against your parent's home equity. Your parent borrows money from a lender, and the lender holds a claim against the house. The loan does not 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. The loan balance grows instead of shrinking.
Your parent receives cash and 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 in the background, growing larger because no payments are being made toward it. When they no longer live there, 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 through FHA. According to the CFPB, HECMs account for the vast majority of reverse mortgages and carry consumer protections that proprietary products do not. There are also proprietary reverse mortgages with higher loan limits for homes worth more than the FHA limit, and single-purpose reverse mortgages offered by some local or state programs for specific needs like home repairs or property taxes.
How Much Money Is Actually Available
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 (the minimum age for a HECM) might access 20 to 30 percent of their home's equity. An 85-year-old could access 50 to 60 percent. If your parent's house is worth $500,000 with no existing mortgage, a 75-year-old might access $150,000 to $200,000.
But there are costs baked in. Reverse mortgages are not free. There is an origination fee (typically up to $6,000 for a HECM, or two percent of the home's value up to a cap), an appraisal fee, mortgage insurance premiums, and closing costs. For a $150,000 reverse mortgage, you might pay $5,000 to $10,000 in upfront costs. These costs often get rolled into the loan so your parent doesn't pay out of pocket, but they reduce the amount actually received.
Then there's the interest rate, which compounds over time. Interest rates on reverse mortgages are variable or fixed depending on the type. According to current HECM data, variable rates typically start around 6 to 7 percent. Interest accrues monthly and adds to the loan balance. If your parent takes out $150,000 at 6.5 percent interest and the loan runs for 10 years, the balance could grow to roughly $280,000 before the loan is repaid.
The line of credit option works differently and has an advantage that surprises most people: the unused portion of the credit line grows over time at the same rate as the loan balance. This means the available credit increases even if your parent doesn't draw from it. Some families use this feature strategically, setting up the line of credit early and letting it grow as a financial safety net.
The Obligations That Don't Go Away
Getting a reverse mortgage does not 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 they don't, the lender can call the loan due immediately. According to the CFPB, failure to meet these obligations is one of the leading causes of reverse mortgage defaults.
This matters because some seniors take out a reverse mortgage thinking it will solve all their problems, and then struggle to pay property taxes or keep insurance current. 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 is also the question of what happens if your parent gets seriously ill and needs to move to a facility. If your parent moves to assisted living, they are still technically living in the home. But if they move to a nursing facility and don't return home for more than 12 consecutive months, the HECM loan becomes due. Your family would need to sell the house or refinance. If your parent moves back home, that 12-month clock resets. But if they don't return, you have roughly a year to figure out next steps.
Is This the Right Tool for Your Parent
Before your parent talks to a reverse mortgage company, 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.
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 a home equity line of credit or 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, a reverse mortgage starts to make sense.
What does your parent want to happen to the house? If they are counting on the home as inheritance for their children, they need to understand that a reverse mortgage reduces the equity available to pass on. According to NAR data, the median existing home has appreciated roughly 5 percent annually in recent years, but a reverse mortgage balance growing at 6 to 7 percent will outpace that appreciation, consuming equity over time.
Is your parent's thinking clear? Reverse mortgage companies are required to verify that your parent understands what they're signing, but the burden 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.
Moving Forward If It Makes Sense
If a reverse mortgage seems like it might help, the first step is a required counseling session. Your parent must meet with a HUD-approved counselor who explains how reverse mortgages work, what the costs are, what alternatives exist, and what the long-term implications are. This counselor does not work for the lender. They work for your parent. Take this seriously. If something doesn't make sense in that session, push back.
After counseling, if your parent wants to proceed, they will need to choose a lender and get a formal application. At this point, get a second opinion from your parent's financial advisor, attorney, or accountant. 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.
Once a reverse mortgage is in place, your parent's life doesn't dramatically change. They are still in their house, still paying their bills. The loan sits there growing 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 health declines faster than expected.
A reverse mortgage is a tool. It is not good or bad in itself. It is either right for your parent's situation or it isn't. Understanding it fully before signing anything is what separates a good decision from a regrettable one.
Frequently Asked Questions
Can my parent lose their home with a reverse mortgage?
Yes, if they fail to pay property taxes, maintain homeowner's insurance, or keep the home in reasonable condition. The lender can also call the loan due if your parent moves out of the home for more than 12 consecutive months. However, as long as your parent meets these obligations and continues to live in the house, they cannot be forced out.
How much does a reverse mortgage cost?
Upfront costs for a HECM typically include an origination fee (up to $6,000), FHA mortgage insurance premium (2 percent of the home's value at closing plus an annual premium of 0.5 percent), appraisal fees, and closing costs. These can total $10,000 to $15,000 or more and are usually rolled into the loan balance rather than paid out of pocket.
What happens to the reverse mortgage when my parent dies?
The loan becomes due. The estate has several options: sell the home and use the proceeds to repay the loan (keeping any remaining equity), refinance the loan into a traditional mortgage, or pay off the balance with other funds. If the loan balance exceeds the home's value, FHA insurance covers the difference. Heirs are not personally liable for any shortfall.
Does a reverse mortgage affect Medicaid eligibility?
Reverse mortgage proceeds received as a lump sum are generally treated as a loan, not income, and do not affect Medicaid eligibility in the month received. However, if the funds sit in a bank account, they count as an asset the following month. This means your parent needs to spend the proceeds in the month they receive them to avoid affecting Medicaid asset limits. A line of credit that has not been drawn does not count as an asset.
Is there a minimum age for a reverse mortgage?
Yes. For a HECM (the most common type), at least one borrower must be 62 years old. The older the borrower, the more equity they can access. Some proprietary reverse mortgage products may have different age requirements.
Should I consider a home equity line of credit instead?
A HELOC may be a better option if your parent needs a smaller amount, has sufficient income to make monthly payments, and wants to preserve more equity. HELOCs typically have lower upfront costs and lower interest rates than reverse mortgages. The trade-off is that a HELOC requires monthly payments, while a reverse mortgage does not. If your parent cannot afford additional monthly obligations, a reverse mortgage may be the more appropriate tool.