A reverse mortgage — officially HECM, Home Equity Conversion Mortgage — lets homeowners age 62+ convert home equity to cash without monthly payments. The loan balance grows instead of shrinking, and is repaid when the borrower sells, moves out permanently, or passes away. Used carefully, it can preserve retirement savings. Used poorly, it depletes the estate and creates family conflict.
Worked example: 72-year-old with a paid-off $500,000 home. HECM principal limit factor at age 72 and current rates ≈ 55% = $275,000 available. After upfront mortgage insurance ($10,000) and origination ($6,000), net available is ~$259,000. Balance grows at ~7.5% annually. After 15 years, balance = ~$770,000. If home appreciated 3%/yr it's worth $779,000. Remaining equity: $9,000.
When HECM makes sense
- You want to age in place and have substantial equity but limited income
- Alternative is selling the home and moving (emotional or logistical hardship)
- You have no heirs expecting the home, or heirs who will not be surprised by a depleted estate
- You use the proceeds for a structured plan (supplement Social Security, delay 401(k) withdrawals)
When HECM is a mistake
- You might move within 5 years (upfront fees not recovered)
- You want to leave the home to heirs
- You have other retirement income and don't need the cash flow
- You're being pitched by someone promising "free money" or pressuring you to sign
HECM fees and rules
- Upfront MIP: 2% of home value (capped at HECM lending limit of $1,149,825 for 2026)
- Annual MIP: 0.5% of balance
- Origination: max of $6,000 or 2% of first $200K + 1% above
- Appraisal, title, escrow — similar to a purchase
- HUD counseling required before closing (~$125-$200)
- Must stay current on property tax, insurance, and HOA — default on these triggers loan call