What Is a Reverse Mortgage
A Home Equity Conversion Mortgage, or HECM, is a federally insured reverse mortgage backed by the FHA. It allows homeowners age 62 and older to convert a portion of their home equity into cash. Unlike a traditional mortgage where you make payments to the lender each month, a reverse mortgage works in the opposite direction. The lender pays you.
The loan balance grows over time as interest accrues on the amount you receive. But you are not required to make any monthly mortgage payments while you live in the home. The full balance becomes due when the last borrower sells the home, moves out permanently, or passes away.
HECM at a Glance
Insured by: Federal Housing Administration (FHA).
Minimum age: 62 years old.
Monthly mortgage payments: None required.
Ownership: You retain full title to the home.
Repayment: When borrower sells, moves out, or passes away.
How It Works
With a traditional mortgage, you borrow money and pay it back over time. With a reverse mortgage, the lender advances money to you based on your home equity, and the loan balance increases over time instead of decreasing.
You choose how to receive the funds.
Lump sum. Receive all available funds at once at closing. This option uses a fixed interest rate.
Monthly payments. Receive steady monthly payments for a set term or for as long as you live in the home. This provides predictable supplemental income.
Line of credit. Draw funds as needed up to your approved limit. The unused portion of the credit line grows over time, giving you access to more money later.
Combination. Mix monthly payments with a line of credit to balance regular income and flexible access to funds.
Regardless of which option you choose, you must continue paying property taxes, homeowners insurance, and any HOA fees. You must also maintain the property in reasonable condition.
Who Qualifies for a Reverse Mortgage
HECM eligibility requirements are straightforward, but every item must be met.
Eligibility Requirements
Age: At least one borrower must be 62 or older.
Equity: Sufficient home equity, typically 50% or more.
Primary residence: The property must be your primary home.
HUD counseling: You must complete a HUD-approved counseling session before applying.
Property standards: The home must meet FHA property condition requirements.
Financial assessment: Lenders verify you can maintain property taxes, insurance, and upkeep.
There is no minimum credit score requirement for a HECM, but lenders conduct a financial assessment to confirm you can cover ongoing property charges. If there are concerns, the lender may set aside a portion of loan proceeds in a Life Expectancy Set-Aside (LESA) to cover future taxes and insurance.
How Much Can You Borrow
The amount available to you depends on three factors: your age, your home value, and current interest rates.
Age matters. Older borrowers qualify for a higher percentage of their home value. A 67-year-old might access 40 to 45% of the home value, while a 77-year-old might access 55 to 60%.
Home value. The FHA lending limit for HECM loans is $1,209,750 in 2026. If your home is worth more, the calculation is based on that limit rather than the full appraised value.
Interest rates. Lower rates increase the amount available to you. Higher rates reduce it.
The specific calculation uses the Principal Limit Factor tables published by HUD, which combine all three variables into a single percentage applied to the lesser of your home value or the FHA lending limit.
HECM vs HECM for Purchase
Most people think of reverse mortgages as a refinancing tool for their current home. But there is a second option that many Houston seniors overlook.
Standard HECM. You stay in your current home and convert existing equity into cash. If you have an existing mortgage, the HECM pays it off first, and you receive the remaining funds. This eliminates your monthly mortgage payment.
HECM for Purchase. You use a reverse mortgage to buy a new home. This is useful for seniors who want to downsize, move closer to family, or relocate to a single-story home for accessibility. You pay the difference between the purchase price and the HECM amount as your down payment, then make no monthly mortgage payments going forward.
HECM for Purchase Example
New home price: $350,000.
HECM amount available: $190,000 (based on age, rate, and home value).
Your down payment: $160,000 (from sale of current home or savings).
Monthly mortgage payment: $0. You pay only taxes, insurance, and HOA.
HECM for Purchase can be a strong option for Houston seniors selling a larger home and buying something smaller, keeping significant cash in reserve while eliminating the monthly mortgage payment on the new property.
Costs and Considerations
Reverse mortgages have specific costs that differ from traditional mortgages. Understand these before deciding.
FHA mortgage insurance premium. 2% of the home value upfront, plus 0.5% annually on the outstanding loan balance. This insurance protects you and your heirs by guaranteeing the loan is non-recourse.
Origination fee. Lenders can charge up to $6,000 depending on the home value. The fee is capped by HUD guidelines.
Closing costs. Standard closing costs including appraisal, title insurance, and recording fees apply. Most closing costs can be financed into the loan.
Interest accrual. Because you are not making monthly payments, interest is added to the loan balance each month. The loan balance grows over time. This is the most important concept to understand. The equity you retain decreases as the loan balance increases, though home appreciation can offset some or all of that growth.
Heirs and remaining equity. When the loan becomes due, the home is typically sold. After the loan balance is repaid, any remaining equity goes to you or your heirs. If the home value is less than the loan balance, FHA insurance covers the difference. Your heirs are never personally responsible for the shortfall.
When a Reverse Mortgage Makes Sense
Supplement retirement income. Social Security and retirement savings are not enough to cover your monthly expenses comfortably. A reverse mortgage provides additional cash flow without requiring you to sell your home.
Eliminate an existing mortgage payment. If you still have a traditional mortgage, a HECM pays it off and eliminates that monthly obligation. This frees up cash you were spending on the mortgage payment.
Fund home modifications for aging in place. Install a stairlift, widen doorways, remodel a bathroom for accessibility, or make other changes that allow you to stay in your home safely as you age.
Delay Social Security. If you can delay claiming Social Security benefits, your monthly benefit increases significantly for each year you wait up to age 70. A reverse mortgage line of credit can bridge that gap.
Create an emergency fund. A HECM line of credit sits available for unexpected medical expenses, home repairs, or other emergencies. The unused credit line grows over time.
When a Reverse Mortgage Does NOT Make Sense
Planning to move soon. If you expect to sell the home within two to three years, the upfront costs of a reverse mortgage may outweigh the benefits. The closing costs and mortgage insurance premiums need time to justify themselves.
Want to leave the home to heirs free and clear. A reverse mortgage reduces the equity in your home over time. If leaving the property with no mortgage to your children or grandchildren is a priority, a reverse mortgage works against that goal.
Sufficient retirement income. If your Social Security, pension, retirement accounts, and other income cover your expenses comfortably, taking on a reverse mortgage adds unnecessary cost and complexity.
High existing debt. If you have significant credit card debt, medical debt, or other obligations that would consume the reverse mortgage proceeds, addressing the underlying spending issue first may be more effective than accessing home equity.
Frequently Asked Questions
Can I lose my home with a reverse mortgage?
You retain title and ownership. The loan does not become due as long as you live in the home as your primary residence and continue paying property taxes, homeowners insurance, and HOA fees. Failure to pay those obligations can trigger a default.
What happens to the reverse mortgage when I die?
The loan becomes due. Heirs can sell the home and keep any equity above the loan balance, refinance into a traditional mortgage to keep the home, or hand the keys to the lender with no personal liability. FHA insurance covers any shortfall if the home is worth less than the loan balance.
Can my spouse stay in the home after I pass away?
If your spouse is a co-borrower, they continue under the same terms. If they are listed as an eligible non-borrowing spouse, HUD protections allow them to remain in the home as long as they meet occupancy and property charge requirements. Discuss spousal protections during the application process.
Is reverse mortgage money taxable income?
No. Reverse mortgage proceeds are loan advances, not income. They are not subject to federal income tax and do not affect Social Security retirement benefits. Needs-based programs like Medicaid may be affected if you hold large cash balances, so consult a financial advisor.
Can I refinance a reverse mortgage?
Yes. You can refinance into a new HECM if your home has appreciated and you want access to more equity. You can also refinance into a traditional mortgage. HECM-to-HECM refinances require a documented net tangible benefit to the borrower.
What if my home value drops below the loan balance?
HECM loans are non-recourse. You and your heirs will never owe more than the home is worth at the time of sale. FHA mortgage insurance covers the difference between the loan balance and the home value.
Free Reverse Mortgage Consultation
A reverse mortgage is one of the most significant financial decisions a senior homeowner can make. Brandon walks you through the numbers for your specific situation, explains the costs, and helps you determine whether this is the right move for your goals. No pressure, no obligation.
Related Resources
- Senior Mortgage Houston - All mortgage options for Houston seniors
- Home Equity Loan Houston - Traditional home equity options
- Refinance Houston - Refinancing your current mortgage
- FHA Loans Houston - FHA loan programs overview
- Mortgage Pre-Approval Houston - Start the process today
Free Reverse Mortgage Consultation for Houston Homeowners 62+
Brandon explains your HECM options, runs the numbers based on your age and home value, and helps you decide if a reverse mortgage fits your retirement plan. Free consultation, no obligation.
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