The short answer
A reverse mortgage lets homeowners, generally 62 or older, borrow against their home equity and receive money as a lump sum, monthly payments, or a line of credit, without having to sell or make monthly mortgage payments. The loan is repaid, with interest and fees, when you sell, move out permanently, or die, usually from the home's sale. It can be a way to access home equity in retirement while staying in the home, but it is complex, reduces the equity left to heirs, and carries costs, so it is not right for everyone.
So a reverse mortgage lets older homeowners tap equity without selling or making payments, repaid later from the home, at the cost of reduced equity and fees.
How it works
You borrow against your equity and choose how to receive the funds, while you continue to own and live in the home and remain responsible for property taxes, insurance, and upkeep. Interest accrues on the growing balance, and the loan comes due when you leave the home. Because the balance grows over time, the equity remaining for you or your heirs shrinks. It differs fundamentally from downsizing, which sells the home outright. Our guide to downsizing in retirement covers that alternative.
The mechanics are a growing loan balance against your equity, repaid when you leave the home, with you keeping ownership meanwhile.
When it may make sense
A reverse mortgage may fit a homeowner who wants to stay in their home, needs additional income or a financial cushion, and understands the costs and the effect on their estate. It is generally not ideal if you plan to move soon or want to preserve home equity for heirs. Because these loans are complex and have required counseling, get independent advice before proceeding. This is educational information, not a recommendation. Our retirement income guide covers where it fits.
The takeaway: a reverse mortgage can provide retirement income while you stay in your home, but it reduces equity and carries costs, so weigh it carefully with independent advice.
Frequently Asked Questions
How does a reverse mortgage work?
Homeowners generally 62 or older borrow against their equity and receive funds as a lump sum, monthly payments, or a line of credit, with no monthly mortgage payments. The loan is repaid when you sell, move out, or die.
When does a reverse mortgage make sense?
It may fit someone who wants to stay in their home, needs added income, and understands the costs and the reduced equity for heirs. It is less ideal if you plan to move soon or want to preserve equity.
What are the downsides of a reverse mortgage?
It is complex, carries interest and fees, and reduces the equity left to you or your heirs as the balance grows. You also remain responsible for taxes, insurance, and upkeep.
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