Reverse Mortgages Explained

A reverse mortgage lets homeowners 62 and older convert equity into tax-free cash with no monthly payment required. The mechanics are straightforward; the tradeoffs take more attention.

How does a reverse mortgage work?

Instead of you paying the lender, the lender pays you, as a lump sum, a line of credit, or a monthly draw. The balance grows over time and is repaid when you sell, move out, or pass away. You can estimate your proceeds in the reverse mortgage calculator.

What are the pros?

• No monthly mortgage payment.
• Tax-free cash you can use for any purpose.
• The loan is non-recourse: you and your heirs never owe more than the home is worth at sale.
• You keep the title and remain in your home.

What are the cons?

• The balance compounds over time. See how fast in the balance calculator.
• Upfront fees and mortgage insurance add up.
• It reduces the equity available to heirs.
• You must keep paying property taxes, insurance, and maintenance costs.

Reverse mortgage vs HELOC: things to know before you pick one

If you can make monthly payments, a HELOC is generally cheaper and preserves more equity. A reverse mortgage suits borrowers who cannot or prefer not to make monthly payments. Compare the two in the vs HELOC tool, and check your current equity with the home equity calculator.