A reverse mortgage lets homeowners age 62 and older convert part of their home equity into cash without selling their home or taking on a monthly mortgage payment. Instead of the borrower paying the lender each month, the lender pays the borrower, through a lump sum, a line of credit, monthly payments, or a combination of the three. The loan balance grows over time as interest and fees accrue, and it typically becomes due when the last surviving borrower moves out, sells the home, or passes away.
The most common type is the Home Equity Conversion Mortgage (HECM), a reverse mortgage insured by the Federal Housing Administration (FHA). Because the federal government insures HECM loans, they come with consumer protections and lending limits that proprietary (non-FHA) reverse mortgages don’t always include. Homeowners can also find proprietary or “jumbo” reverse mortgages through private lenders, which sometimes start at age 55 and can serve higher-value homes that exceed the FHA lending limit.
How Does a Reverse Mortgage Work?
A reverse mortgage draws on the equity already built into a home. The amount a homeowner can borrow depends on several factors:
- The age of the youngest borrower (or eligible non-borrowing spouse) — older borrowers generally access a higher percentage of their equity
- The home’s appraised value, up to the current FHA lending limit, which HUD updates annually and publishes at HUD.gov
- The expected interest rate at the time of application
- Any existing mortgage balance, which must be paid off first, often using the reverse mortgage proceeds themselves
Borrowers don’t make monthly principal and interest payments, but they still need to keep up with property taxes, homeowners insurance, and basic home maintenance. Falling behind on these obligations can put a reverse mortgage into default, so lenders evaluate a borrower’s financial capacity to keep meeting them before approving the loan.
Repayment comes due when the last borrower on the loan permanently leaves the home. At that point, the home is typically sold, and the proceeds go toward paying off the loan balance. Heirs can also choose to keep the home by paying off the loan through other means, such as a traditional mortgage or savings. Because HECM loans are non-recourse, the borrower or their estate never owes more than the home’s value at the time of repayment, even if the loan balance has grown larger than that.
Who Qualifies for a Reverse Mortgage?
Reverse mortgage eligibility comes down to a handful of core requirements:
Age. At least one borrower must be 62 or older for a HECM. Proprietary reverse mortgages sometimes allow borrowers as young as 55.
Home equity. Borrowers generally need substantial equity in the home, often at least 50%, though the exact figure depends on age, home value, and current rates.
Primary residence. The home must be the borrower’s primary residence, not a vacation home or rental property.
Property type. Single-family homes qualify most easily. Condominiums must be on the FHA-approved list or receive single-unit approval. Manufactured homes can qualify if they were built after June 15, 1976, meet FHA standards, and sit on a permanent foundation. Two-to-four-unit properties can also qualify as long as the borrower occupies one unit as their primary residence.
Financial assessment. Lenders review income, assets, and credit history to confirm the borrower can continue covering property taxes, insurance, and upkeep after closing. There isn’t a government-set minimum credit score for a HECM, but a borrower’s payment history still factors into this review, and past delinquencies on property taxes or insurance may require setting aside loan proceeds to cover those costs going forward. Borrowers should not have delinquent federal debt at closing.
HUD-approved counseling. Every HECM borrower must complete a counseling session with a HUD-approved counselor before applying. This isn’t a sales pitch. It’s an independent review designed to make sure a borrower understands how the loan works, what it costs, and how it affects their heirs. In the Phoenix area, Trellis is a HUD-approved, HECM-verified counseling agency homeowners can work with as part of this step.
Tyler Arnaiz works through this checklist with every borrower up front, so there aren’t any surprises once the paperwork starts moving.
Pros and Cons at a Glance
Advantages
- No monthly mortgage payment. Frees up cash flow for homeowners on a fixed income.
- Flexible payout options. Choose a lump sum, line of credit, monthly payments, or a mix.
- Stay in the home. Borrowers keep the title and can remain in the home as long as it stays their primary residence and they meet loan obligations.
- Non-recourse protection. HECM borrowers or their heirs never owe more than the home is worth when the loan comes due.
- Growing credit line option. An unused HECM line of credit can grow over time, giving borrowers more available funds later in retirement.
Disadvantages
- Loan balance grows over time. Because interest accrues on the outstanding balance instead of being paid down monthly, the amount owed increases the longer the loan is outstanding.
- Reduces home equity for heirs. Less equity remains for heirs unless they choose to pay off the loan and keep the home.
- Upfront and ongoing costs. Origination fees, mortgage insurance premiums, and closing costs apply, along with servicing fees over the life of the loan.
- Ongoing obligations still apply. Borrowers remain responsible for property taxes, insurance, and home maintenance, and failing to keep up can trigger default.
- Not ideal for short-term stays. The upfront costs make a reverse mortgage less cost-effective for homeowners who plan to move again soon.
How It Compares to a Home Equity Loan
Both options let homeowners tap into equity, but they work in opposite directions. A home equity loan or HELOC requires monthly payments and typically has stricter income and credit requirements, since the lender needs to see the borrower can repay the loan on a set schedule. A reverse mortgage doesn’t require monthly payments, and it’s built specifically for borrowers 62 and older who want to access equity without adding a new payment obligation.
Homeowners who need a smaller amount of cash and can comfortably manage monthly payments may find a home equity loan more cost-effective. Homeowners who want to eliminate a monthly payment altogether, or who don’t qualify for a traditional loan on a fixed income, often find a reverse mortgage the better fit.
Common Myths, Corrected
“The bank takes ownership of my home.” Borrowers keep the title and full ownership of the home throughout the life of the loan.
“My heirs will inherit debt.” HECM loans are non-recourse. Heirs never owe more than the home’s value when the loan comes due, and they aren’t personally responsible for the balance.
“I can’t leave my house to my family.” Heirs can keep the home by paying off the loan balance, whether through a new mortgage, savings, or the sale of other assets.
“Reverse mortgages are only for homeowners in financial trouble.” Many borrowers use a reverse mortgage as a proactive retirement planning tool, supplementing Social Security and other income sources, or setting up a standby line of credit for future needs.
Talk to Tyler Arnaiz About Your Reverse Mortgage Options
Deciding whether a reverse mortgage fits your retirement plan is a big decision, and it deserves a straight answer from someone who knows the process inside and out. Tyler Arnaiz has spent more than 16 years serving homeowners throughout Surprise and the greater Phoenix area, and he shops reverse mortgage options across multiple lenders rather than locking you into a single institution’s terms.
Reach out to Tyler Arnaiz at (623) 806-4645, tarnaiz@arnaizmortgage.com, or through the Arnaiz Mortgage contact page to walk through your eligibility, estimate your available funds, and get every question answered before you commit to anything.
Frequently Asked Questions
Is a reverse mortgage a good idea?
It depends on the homeowner’s goals and financial picture. A reverse mortgage can make sense for someone who wants to stay in their home, needs additional cash flow in retirement, and has substantial home equity. It’s less ideal for someone planning to move in the next few years or who wants to preserve maximum equity for their heirs. A conversation with Tyler Arnaiz and a HUD-approved counselor can help clarify whether it fits a specific situation.
Do I have to pay back a reverse mortgage every month?
No. Reverse mortgage borrowers don’t make monthly principal and interest payments. The loan balance becomes due when the last borrower permanently leaves the home, sells it, or passes away.
What happens to a reverse mortgage when the homeowner dies?
The loan becomes due. Heirs can sell the home and use the proceeds to pay off the balance, refinance the balance to keep the home, or pay it off with other funds. Because HECM loans are non-recourse, heirs never owe more than the home’s value at that time.
How much money can I get from a reverse mortgage?
The amount depends on the youngest borrower’s age, the home’s appraised value up to the current FHA lending limit, and prevailing interest rates. Tyler Arnaiz can run the numbers for a specific property and provide an accurate estimate.
Are reverse mortgages safe?
FHA-insured HECM loans come with strong consumer protections, including mandatory HUD counseling, non-recourse protection, and limits on origination fees. Working with a licensed, experienced broker like Tyler Arnaiz and a HUD-approved counselor helps ensure the process stays transparent from application to closing. If you own a home in Arizona, you can also compare reverse mortgage options by city or read the details on a Phoenix reverse mortgage.