Why Would Someone Use a Reverse Mortgage: Uses and Costs

People use a reverse mortgage to turn part of their home’s equity into spendable cash without selling the house or taking on a monthly mortgage payment. For homeowners 62 and older, the Home Equity Conversion Mortgage (HECM) insured by the FHA is the most common version, with a 2026 nationwide lending limit of $1,249,125.¹ The reasons borrowers actually pull the trigger tend to fall into five patterns, and each one has to be weighed against the loan’s upfront costs, ongoing obligations, and the effect on what your heirs inherit.

Supplementing Fixed Retirement Income

Social Security and pension checks often leave retirees short on everyday cash while their home holds equity they can’t spend. A HECM addresses that mismatch directly. You can take “tenure” payments, a fixed monthly amount for as long as you live in the home; “term” payments for a set number of years; a line of credit you draw from as needed; or a mix of monthly payouts and a credit line.²

How much you qualify for depends on your age, current interest rates, and the lesser of your home’s appraised value or the FHA lending limit. A 62-year-old will get a smaller percentage of the home’s value than a 75-year-old, because the lender expects interest to accrue over more years. A line of credit has one quiet advantage over a lump sum: the unused portion grows over time, so you can access more money later even if your home’s market value stays flat or drops.²

Paying Off an Existing Mortgage

If you still owe on a traditional mortgage, the first thing a HECM does is pay it off. The lender requires this because the HECM has to hold the first lien on the property. Once that balance is cleared, you stop writing a monthly mortgage check. For someone on a fixed budget sending $1,200 or $1,500 a month to a lender, that alone is often the biggest improvement to their monthly cash flow.

This is where many borrowers first get interested. They don’t want extra spending money so much as they want to stop bleeding cash on a payment they can barely afford. Any remaining proceeds after payoff are yours to take as a lump sum, line of credit, or monthly payments. A large existing balance will eat into the equity available for anything else, so borrowers who owe close to what the HECM would provide may find little left over.³

Paying for Home Modifications to Age in Place

Staying in your home as your mobility changes usually means spending real money on structural changes. Wheelchair ramps, walk-in tubs, stairlifts, grab bars, and widened doorways are what stand between you and a fall. Walk-in tubs alone typically run from $3,000 for a basic model to $17,000 or more for a multi-feature installation with labor. Add a stairlift and a bathroom remodel and you can easily pass $20,000.

Contractors on that kind of work usually want a significant deposit before starting, and most retirees don’t have that cash sitting in checking. A HECM line of credit lets you draw what you need, when you need it, without liquidating savings or investments. These projects fit the loan’s design because they help you continue meeting the requirement that the home stays your primary residence.³

Covering Healthcare and Personal Care Costs

Medicare doesn’t cover everything, and the gaps hit hardest where older adults need the most help: long-term home care, dental work, hearing aids, and extended therapy. A home health aide runs roughly $35 per hour at the 2026 national median. At 30 hours a week, that’s over $4,500 a month. The alternative, an assisted living facility, carries a national median cost of about $6,300 per month.

Reverse mortgage proceeds give you a way to pay for in-home care without draining a retirement account that also has to fund the next 10 or 20 years. Drawing from home equity keeps your investment portfolio intact and avoids the tax hit that comes with large IRA or 401(k) withdrawals. For many families, this is the calculation that makes the loan pencil out.

Coordinating With Other Retirement Assets

Some financial planners recommend a reverse mortgage not as a last resort but as a deliberate piece of a broader retirement strategy. Two uses come up most.

Bridging the Gap to a Higher Social Security Benefit

For anyone born in 1943 or later, Social Security benefits grow by 8% for each year you delay claiming past full retirement age, up to age 70.⁴ The challenge is covering living expenses from 62 to 70 while you wait. A HECM line of credit or tenure payment can fill that gap, effectively using home equity now to lock in a permanently higher monthly check later. By 70, the increased Social Security benefit often more than offsets the interest that accrued on the loan.

Protecting a Portfolio in Down Markets

Selling stocks after a 30% market drop to fund living expenses is one of the fastest ways to damage a retirement plan. The concept is called sequence-of-returns risk: withdrawals during a downturn permanently shrink the portfolio’s recovery potential. A standby HECM line of credit lets you draw from home equity during bad years and leave investments alone to recover. Once the market bounces back, you can stop drawing on the credit line and return to portfolio withdrawals. The unused portion of the credit line keeps growing regardless of what the housing market does.

What It Costs to Set Up and Carry

A reverse mortgage isn’t cheap, and the costs compound over the life of the loan. Clear numbers going in prevent the most common source of borrower regret.

Mortgage Insurance Premiums

FHA charges an upfront mortgage insurance premium of 2% of your home’s appraised value or the lending limit, whichever is less. On a home appraised at $400,000, that’s $8,000 at closing. On top of that, you pay an annual premium of 0.5% of the outstanding loan balance, added to what you owe each year. This insurance is what makes the non-recourse protection possible: it guarantees neither you nor your heirs will ever owe more than the home is worth.

Origination Fees

The lender’s origination fee follows a federal formula: 2% of the first $200,000 of the maximum claim amount, plus 1% of anything above that, with a floor of $2,500 and a cap of $6,000.⁵ The fee can be rolled into the loan balance, so you don’t need cash at closing, but it accrues interest for the life of the loan.

Closing Costs and Interest

Expect standard closing costs: an appraisal (typically $450 to $750), title insurance, recording fees, and third-party charges. The interest rate depends on how you take the money. A lump sum is the only option that qualifies for a fixed rate. Every other payment plan (line of credit, tenure, or term) uses an adjustable rate tied to an index that can move monthly, though rate increases are capped at 2% per adjustment and 5% over the life of the loan. Your lender must provide a Total Annual Loan Cost disclosure projecting how these charges add up under different scenarios.⁶

Obligations That Keep the Loan in Good Standing

No monthly mortgage payment doesn’t mean no obligations. Missing any of the following can trigger a default notice and eventually foreclosure.

Property taxes, homeowner’s insurance, and flood insurance (if applicable) have to stay current. If your lender decides you’re at risk of falling behind, they may set aside part of your loan proceeds in a dedicated account to cover these.
The home must be kept in reasonable repair. Letting it deteriorate enough to lose significant value is a default trigger.
The home has to remain your primary residence, and you’ll certify that annually. Extended absences beyond a couple of months should be reported to your servicer.
HOA and condo fees, if any, have to stay current.

If you receive a default notice, contact your servicer immediately. Workout options sometimes exist, but the window is narrow.⁷ Before you can close on a HECM in the first place, you’ll also need to complete a one-on-one session with a HUD-approved counselor unconnected to your lender, and you can find one through HUD or by calling 800-569-4287.⁸

What Happens to the Home and Your Heirs

This is the question that stops many families from moving forward, and the answer is more protective than most expect. A HECM is a non-recourse loan, meaning the lender can only collect what the home is worth. If the loan balance has grown past the home’s value, your heirs owe nothing out of pocket. The FHA insurance you paid for covers the lender’s shortfall.⁵

After the last borrower dies, the servicer sends a due-and-payable notice to the estate or heirs. From that notice, heirs have 30 days to begin one of three paths: pay off the full balance, sell the property and apply the proceeds to the debt, or sign the property over to the lender through a deed in lieu of foreclosure.⁵ If heirs sell, federal rules let them satisfy the debt at 95% of the current appraised value even if the loan balance exceeds that amount. Extensions are possible but aren’t automatic; heirs have to communicate with the servicer and show progress toward a resolution.

Non-Borrowing Spouse Protections

If you’re married and only one spouse is listed as the borrower, the non-borrowing spouse can stay in the home after the borrower dies, but only if they were properly identified in the loan documents at closing. The surviving spouse must establish a legal right to remain in the property within 90 days of the borrower’s death, keep meeting all loan obligations, and keep the home as their primary residence.⁹ One critical detail: the non-borrowing spouse cannot receive any additional loan proceeds during the deferral period. If your spouse is younger than 62 and can’t be listed as a co-borrower, make sure the lender names them as an eligible non-borrowing spouse in the mortgage documents. That step can’t be added later.

1
U.S. Department of Housing and Urban Development (HUD). HUD Federal Housing Administration Announces 2026 Loan Limits
2
Consumer Financial Protection Bureau. How Much Money Can I Get With a Reverse Mortgage Loan, and What Are My Payment Options
3
U.S. Department of Housing and Urban Development (HUD). HUD FHA Reverse Mortgage for Seniors (HECM)
4
Social Security Administration. Early or Late Retirement
5
eCFR. 24 CFR Part 206 Home Equity Conversion Mortgage Insurance
6
eCFR. 12 CFR 1026.33 Requirements for Reverse Mortgages
7
Consumer Financial Protection Bureau. What Should I Do If I Have a Reverse Mortgage Loan and I Received a Notice of Default or Foreclosure
8
HUD. Home Equity Conversion Mortgages Handbook 7610.1
9
eCFR. 24 CFR 206.55 Deferral of Due and Payable Status for Eligible Non-Borrowing Spouses