Reverse mortgage for seniors What it costs and when it must be repaid

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A reverse mortgage lets a homeowner 62 or older borrow against home equity with no monthly payment. The balance grows and is repaid when the borrower dies or no longer lives there. How long your parent stays decides it.

When care costs climb and the house is paid off, a reverse mortgage is usually the first idea someone in the family raises. It is a real product with federal insurance behind it, and for some households it works well. Whether it works for yours depends less on the interest rate than on two housing facts: how long your parent will keep living in that house, and who else lives there.

The balance grows instead of shrinking

With a regular mortgage, the borrower pays down a shrinking balance every month. A reverse mortgage runs the other way. The Consumer Financial Protection Bureau puts it plainly: borrowers do not make monthly mortgage payments, and interest and fees are added to the loan balance each month so the balance grows. As the balance rises, the equity in the house falls.

The loan stays in place while the borrower lives in the home as a principal residence. HUD says HECM borrowers may reside in their homes indefinitely as long as property taxes and homeowner's insurance are kept current. When the last borrower dies or no longer lives there, the loan is repaid, usually out of the sale of the house.

The federally insured version is the Home Equity Conversion Mortgage, or HECM. HUD calls it the only reverse mortgage insured by the U.S. Federal Government, and it is available only through an FHA-approved lender. Private lenders also sell proprietary reverse mortgages on their own terms. Everything below describes HECMs. The CFPB says on its own pages that its information only applies to Home Equity Conversion Mortgages, which are the most common type of reverse mortgage loans. Other products may differ.

Age 62 is the floor, and counseling is the gate

The CFPB defines a HECM as a special type of home loan only for homeowners who are 62 and older. If both parents are on the title and one is younger, that changes the numbers. The borrowing limit, which the CFPB calls the principal limit, is based on the age of the youngest co-borrower, or of an Eligible Non-Borrowing Spouse.

Counseling is not optional. The CFPB says borrowers must receive counseling from a HUD-approved reverse mortgage housing counseling agency before receiving the loan. HUD maintains the counselor roster and a phone line at (800) 569-4287.

What counseling costs is a fair question and the honest answer is that it varies. The CFPB says HUD-approved agencies are allowed to charge a reasonable fee, cannot charge a fee to someone who cannot afford it, and have to explain all charges before the session starts. No fixed national price appears on either the CFPB or HUD pages.

There is also a short exit. With most reverse mortgages the borrower has three business days after closing to cancel the deal for any reason, without penalty. The CFPB says the cancellation has to go to the lender in writing, sent by certified mail with a return receipt, and that the lender then has 20 days to return money paid for the financing.

Moving out ends the loan, and a long hospital stay can too

The occupancy rules decide whether the loan survives a change in your parent's living situation, and the real rule has more steps in it than "move out and it comes due." The CFPB sets out an occupancy ladder for a HECM borrower with no co-borrower living in the home.

• Away more than two months but less than six: notify the lender or servicer so it knows the borrower still occupies the home as a principal residence.
• Away more than six months for non-medical reasons: the CFPB says the home is no longer the principal residence and the loan must be paid back or satisfied through selling the property or deed-in-lieu of foreclosure.
• Away more than 12 consecutive months in a healthcare facility such as a hospital, rehabilitation center, nursing home, or assisted living facility: the same result. The CFPB says anyone living with the borrower has to move out unless they can repay the loan or qualify as an Eligible Non-Borrowing Spouse.

A rehabilitation stay after a fall does not end the loan on day one. A rehabilitation stay that turns into a permanent placement does. On a separate page the CFPB puts the non-medical case more bluntly: if a spouse or partner is not a co-borrower and the borrower moves someplace else for the majority of the year, the reverse mortgage loan will need to be paid back.

Anyone living in the house who is not a co-borrower or an eligible spouse is exposed here, and that includes the adult child who moved in to provide care. The CFPB's discussion guide, published August 2021, says a housemate age 62 or older who is not a co-borrower will have to move out when the borrower moves out or dies, unless they are an heir who can pay the debt or 95 percent of the appraised value. Qualifying as an Eligible Non-Borrowing Spouse, the CFPB adds, can be difficult, and it points families to an attorney or a HUD-approved housing counseling agency.

Three ongoing obligations survive the closing: property charges paid on time, the home kept in good repair, and the home used as the principal residence. The CFPB's page on borrower responsibilities says that a borrower who does not meet these requirements could lose the home to foreclosure. Where the lender's financial assessment finds a risk, it can require a set-aside, a reserved portion of the loan held back to pay taxes and insurance. That protects against default and reduces the money available for care.

Costs land upfront and then compound

The CFPB groups the upfront costs into three: origination fees of $6,000 or less paid to the lender, third-party real estate closing costs, and an initial mortgage insurance premium paid to the Federal Housing Administration.

The insurance premium is the one cost set by federal rule. HUD set the rates in Mortgagee Letter 2017-12, dated August 29, 2017: the initial rate is two percent of the Maximum Claim Amount, and the annual rate is one-half of one percent of the outstanding mortgage balance. The CFPB's current cost page carries the same 0.5 percent annual figure.

Maximum Claim Amount is not a synonym for the home's value, and the difference matters on an expensive house. HUD's HECM page says the amount available for withdrawal depends on the lesser of appraised value, the HECM FHA mortgage limit, or the sales price. Its 2026 loan limit announcement puts the HECM maximum claim amount at $1,249,125 for FHA case numbers assigned on or after January 1, 2026, up from $1,209,750 in 2025. A house worth well above the limit is capped at the limit for both borrowing and premium purposes.

Run the arithmetic on an ordinary case. On a $400,000 home with no existing mortgage, the initial premium at two percent works out to $8,000, charged whether or not a dollar of the credit line is ever drawn. The annual premium is half a percent of the balance owed, so it starts small and rises as the balance rises. Both of those numbers are ours, computed from HUD's published rates, and a lender's own estimate is the one to work from.

Ongoing costs are the quiet part of the deal. The CFPB lists interest, servicing fees, the annual mortgage insurance premium, and property charges, and describes the compounding directly: each month the borrower is charged interest and fees on top of the interest and fees added to the previous month's balance. Its advice for holding that down runs to one sentence: borrow only as much as you need.

Payout choice changes what the loan costs

The CFPB names three main options for receiving the money, and the choice moves the cost.

• Line of credit, adjustable rate. Interest and fees run only on what has been drawn. Unused credit keeps growing, up to a maximum stated in the mortgage. It can be combined with a monthly payout.
• Monthly payout, adjustable rate. Term pays a fixed amount for a set number of years. Tenure pays as long as the borrower maintains the reverse mortgage and the payout does not push the balance past the amount stated in the mortgage.
• Lump sum, fixed rate. All available funds at closing, and the CFPB flags it as the higher-cost option because interest and fees run on the whole amount drawn. There is no credit line growth feature, and the CFPB notes a higher risk for younger borrowers who may outlive the loan funds.

For a family paying for home care in unpredictable bursts, the line of credit is the shape that matches the spending. The CFPB's discussion guide of August 2021 adds one caution to that: withdrawing more than 60 percent of the available funds in the first year carries higher mortgage insurance costs.

Unspent loan money can count against SSI

One correction belongs here, because the usual version of this warning does not hold up at the source. The familiar line is that reverse mortgage proceeds sitting in a bank account wreck Medicaid eligibility. There is no federal Medicaid page that says so. What exists is a Social Security rule about SSI, and a separate sentence at Medicaid.gov that connects the two loosely.

Social Security's 2026 Spotlight on Loans is exact. Money received under a valid loan agreement is not income and does not reduce an SSI benefit. Any funds borrowed and not spent in that month will count toward the SSI resource limit of $2,000 for an individual, or $3,000 for a couple, beginning with the next month.

Medicaid.gov then says that eligibility for individuals 65 and older is generally determined using the income methodologies of the SSI program, and that some states, known as 209(b) states, use certain more restrictive eligibility criteria than SSI, though they still apply SSI methodologies for most purposes.

Read closely, that sentence is about income methodologies, and the $2,000 figure is a resource limit. Those are two different tests, and the states set their own numbers. The practical warning survives with a smaller claim attached to it. Money drawn and left unspent is the risky pattern, and what it does to a particular state's determination is a question for a Medicaid planning attorney before the loan closes. Our guide to Medicaid spend-down covers countable versus exempt assets and the five-year lookback, and how Medicaid pays for long-term care covers the income and asset thresholds and the community spouse rules.

Should your parent get one?

The answer turns on a housing forecast more than on a financial one. It tends to work when:

• Your parent intends to stay in the house for the long run and no one is planning a facility move.
• The money funds care at home that would otherwise force a sale.
• Home equity is the main asset and other income is thin.
• Everyone else living in the house is a co-borrower, or has somewhere else to go.
• Heirs understand the house will most likely be sold to repay the loan.

A reverse mortgage tends to fail when:

• A move to assisted living or memory care is on the table. The initial premium alone is two percent of the Maximum Claim Amount, and a short loan life gives that cost very little time to earn its keep.
• An adult child or a non-borrowing partner lives in the house and could not buy it.
• Medicaid is a live possibility and nobody has asked a planner yet.
• Heirs want to keep the house and cannot repay the balance, or the lesser of that and 95 percent of the appraised value.

Other options come first, and one common pitch is a scam

The CFPB's discussion guide lists alternatives worth pricing before this one: waiting, a home equity loan or line of credit, refinancing into a shorter traditional mortgage, downsizing, and state and local programs for utilities, home repairs and property taxes, which the guide routes through the Administration for Community Living at acl.gov. Its own framing of the product is worth keeping in view while a lender is talking. A reverse mortgage is not free money, and the borrower or the heirs eventually pay it back, usually by selling the home.

Two warnings from the CFPB belong in any family conversation about this. The first is about contractors. Its borrower responsibilities page says to beware of contractors who approach a homeowner about getting a reverse mortgage loan to pay for repairs, and not to be pressured into borrowing for home repairs.

The second is aimed at veterans and their families. The CFPB states that the Department of Veterans Affairs does not offer any reverse mortgage loans, and warns that some mortgage ads falsely promise veterans special deals, imply VA approval, or offer a no-payment reverse mortgage. VA benefits for elder care are real and worth pursuing on their own. A VA reverse mortgage is not one of them.

Work through these questions before anyone signs

1. How long will your parent realistically stay in this house? Every other answer follows from that one.
2. Who else lives there, and is that person a co-borrower on the loan?
3. What equity is left after an existing mortgage is paid off? The CFPB notes that reverse mortgage money goes to the current mortgage first, which can leave little for anything else.
4. What will the proceeds fund, and could a home equity line do the same job for less?
5. Is Medicaid a realistic future step? If so, the attorney conversation belongs before the loan closes.
6. Do the heirs know how repayment works, and have they said what they want to do with the house?

HUD-approved counseling is required and it covers the mechanics of the product, stopping short of a plan for one family's finances. A fee-only financial advisor, paid by the family and not by commission on the sale, can look at the whole picture including the care budget the loan is meant to fund. HUD's HECM page carries the counselor roster search and the lender list search, and the phone line for the roster is (800) 569-4287.