How does a Reverse Mortgage Work?

Home Equity Conversion Mortgages (HECMs) have become the most popular form of reverse mortgage since their introduction in 1987. These loans, insured by the Federal Housing Administration, are the only reverse mortgages guaranteed by the government to deliver what the loan promises.

In general, you must be at least 62 years of age and occupy the home as your principal residence in order to qualify for a reverse mortgage. You must own your home outright or have a minimal mortgage balance that you can pay off with proceeds from the loan. For most federally insured reverse mortgages, your dwelling must be a single-family home or a two- to four-unit property that you own and occupy. In some cases, townhouses, condominium units and manufactured homes are eligible, too.

The amount of cash you could receive depends on a number of factors, including your age, where your house is located and what it’s worth. You may also choose to receive the cash in a lump-sum advance, a credit line account or a fixed monthly loan advance that you receive as long as you stay in your home.
Use our reverse mortgage calculator to help you calculate and compare approximate estimates for two nationally available reverse mortgage programs.

For most people, their home is their largest financial asset, and obtaining a reverse mortgage is a big step. On the next page, we’ll take a look at reasons the reverse mortgage has grown in popularity — and some of the risks involved.