The Short Answer
A reverse mortgage is a loan against your home's equity that pays you — instead of you making monthly payments to a lender, the lender sends money to you. You must be at least 62 years old to qualify, and the loan doesn't come due until you sell the home, move out, or pass away. Interest accrues monthly, so the balance grows over time. It can be a useful retirement income tool, but the long-term costs and risks deserve careful review before you sign anything.
A reverse mortgage is a loan borrowed against the equity in your home. You must be at least 62 years old to qualify for a reverse mortgage, so it is often used by people of retirement age to supplement Social Security or other retirement income.
Instead of making a payment each month as you would with a traditional mortgage loan, a borrower receives money with a reverse mortgage. The loan is secured through the equity in the house, and accrues interest monthly. Money may be received from the lender through a lump sum, monthly payments, or a combination of both. Since the borrower does not make payments back towards the balance, the loan grows each month as interest is tacked on.
The loan will come due when the home is no longer the primary residence of the borrower(s). This will happen as a result of either the property being sold, the resident(s) moving out, or death.
Once the home is not the primary residence of the borrower, the balance can either be paid by the borrowers or their estate, or the home can be sold to pay back the loan. If the property is sold, the difference between the loan and the sale price (in other words, any remaining equity) will belong to the estate. If it is sold for less than the full loan amount, the lender must absorb the loss. They can then request reimbursement from the Federal Housing Administration to cover their loss.
While a reverse mortgage can be used to supplement retirement income and ensure a comfortable lifestyle, there are pitfalls that need to be carefully considered. We recommend that anybody considering a reverse mortgage discuss it with a trusted financial advisor before making any agreements.
Key Takeaways
- A reverse mortgage lets homeowners 62 and older convert home equity into cash through a lump sum, monthly payments, or a combination of both.
- The loan balance grows each month because interest is added without any offsetting payments from the borrower.
- Repayment is triggered when the home is sold, the borrower moves out, or the borrower dies — not on a fixed monthly schedule.
- If the home sells for more than the loan balance, any remaining equity belongs to the borrower's estate; if it sells for less, the lender absorbs the loss and can seek reimbursement from the FHA.
- A reverse mortgage can supplement Social Security or other retirement income, but the trade-off is a steady erosion of the equity you've built in your home.
- Anyone considering a reverse mortgage should consult a trusted financial advisor before signing, since the long-term costs can significantly outweigh the short-term income benefit.
Attorney Insight
The pattern I see most often is clients who took out a reverse mortgage years ago to stay afloat financially, and now their surviving spouse or adult children are blindsided when the loan comes due after a death or move to assisted living — sometimes with far less equity remaining than anyone expected. In North Carolina, where the homestead exemption tops out at $35,000 for an individual ($70,000 for a married couple), a home with a swollen reverse mortgage balance can leave an estate with almost nothing to protect or pass on. If you're already in financial distress and considering a reverse mortgage as a fix, it's worth talking to a bankruptcy attorney first — in some situations, a Chapter 13 reorganization can address the underlying debt without sacrificing the equity you've spent decades building.
