What Is a Reverse Mortgage? – Get the Facts on Reverse Mortgages

A reverse mortgage (or equity release lifetime mortgage in the UK) is a financial product that allows homeowners aged 62 or older (or 55+ in the UK for lifetime mortgages) to convert a portion of their home equity into cash.¹ Unlike a traditional mortgage, you don’t make monthly payments to the lender. Instead, the lender pays you, and the loan is repaid when you sell the home, permanently move out, or pass away.²

Here’s a detailed look based on the provided text, focusing on the UK context where applicable:

What is a Reverse Mortgage (Equity Release Lifetime Mortgage)?

It’s a loan secured against your home. The key distinction from a traditional mortgage is that the lender pays you rather than you paying the lender. This “reverse” flow of payments allows older homeowners to access the wealth tied up in their property without having to sell it or make ongoing monthly repayments.³

You borrow a portion of your home’s equity, and the funds can be received in several ways:

Term payments: Equal monthly payments for a fixed period.
Tenure payments: Equal monthly payments for as long as you live in the home.⁴
One-time lump sum.
Line of credit: You draw funds as needed, up to a certain limit.
A combination of these options.

While you don’t make monthly payments, interest and fees do accrue and are added to the loan balance, meaning the amount you owe increases over time.⁵ Crucially, you remain responsible for paying property taxes, homeowners insurance, and any service charges/maintenance fees (like HOA dues), and for keeping the property maintained.⁶ Failure to meet these obligations can lead to the loan becoming due and potentially result in foreclosure.⁷

How Do You Repay a Reverse Mortgage?

The loan typically does not require repayment for as long as you live in the home as your primary residence (meaning at least six months out of the year). The loan balance, including accrued interest and fees, becomes due when certain events occur:

You sell the home.
You permanently move from the property, such as relocating to a nursing home or assisted living facility for an extended period (usually over 12 consecutive months).
You pass away.

In most cases, the loan is repaid through the sale of the home. If the sale price exceeds the loan amount, any remaining equity goes to you or your heirs. In the UK, most regulated equity release products come with a “no negative equity guarantee”.⁸ This means that even if the loan balance grows to be more than the home’s value, your estate will never owe more than the home is worth when it’s sold, provided the terms of the mortgage are met.⁹ Your heirs will typically have a period (often six to nine months) to decide whether to repay the loan and keep the house, or sell the property to satisfy the debt.

What are the Different Types of Reverse Mortgages?

The information provided primarily refers to the US market, where Home Equity Conversion Mortgages (HECMs) are the most common type, accounting for approximately 95% of outstanding reverse mortgage loans.¹⁰ HECMs are insured by the Federal Housing Administration (FHA) and require borrowers to be at least 62 years old and undergo mandatory counseling from a HUD-certified reverse mortgage counselor.¹¹ This counseling explains the product, risks, and payment options. A key protection of HECMs is that the borrower or their heirs will never owe more than the home’s value, even if it depreciates.¹²

In the UK, the equivalent and most common form of “reverse mortgage” is a Lifetime Mortgage, which is a type of equity release product. While there aren’t direct FHA-insured equivalents, the UK’s equity release market is regulated by the Financial Conduct Authority (FCA) and adheres to standards set by the Equity Release Council (ERC).¹³ These standards provide similar consumer protections, including the “no negative equity guarantee.”¹⁴

Other types mentioned (predominantly US-centric):

Single-purpose reverse mortgage loans: Offered by state or local governments, often with lower fees.¹⁵ These funds are restricted to specific uses, like paying property taxes or covering home repairs.
Proprietary reverse mortgages: Offered by private lenders, these are not government-insured (unlike HECMs) and may carry higher loan amounts (sometimes over £1 million in the UK equivalent, known as “jumbo” lifetime mortgages).¹⁶ However, they lack the specific insurance protections of HECMs if the lender were to go out of business.

How Much Can You Borrow with a Reverse Mortgage?

With an HECM (US context), the maximum loan limit in 2025 is $1,209,750.¹⁷ However, the actual amount you can borrow depends on your principal limit factor (PLF), which is a percentage of your home’s value that you can access.¹⁸ The PLF is determined by HUD based on your age and the current interest rate.¹⁹ For example, a 62-year-old with a 7.25% mortgage rate might have a PLF of 0.301.²⁰ For a home valued at $500,000, this could mean access to approximately $150,000, which then reduces to around $130,000 after deducting closing costs, mortgage insurance, and origination fees. Lenders can provide these calculations.

In the UK, the amount you can release with a lifetime mortgage typically depends on your age (the older you are, the more you can release), your property’s value, and the lender’s criteria.²¹

How Do You Qualify for a Reverse Mortgage?

Age: Generally 62 or older (US HECM), or 55 or older (UK Lifetime Mortgage).²²
Home Equity: Typically, you need at least 50% equity in your home.²³ An appraisal will be conducted to confirm the home’s value.
Financial Assessment: Lenders will assess your financial capability to ensure you can continue to pay property taxes, homeowners insurance, and maintain the property.²⁴ You must also not be in default on any federal debt (US context).
Counseling: For HECMs in the US, mandatory counseling from a HUD-approved counselor is required.²⁵ In the UK, independent financial advice from an equity release specialist is mandatory and regulated by the FCA.²⁶

Are Interest Rates for Reverse Mortgages Fixed or Adjustable?

Most HECMs (US) have adjustable interest rates that can change monthly or annually, tied to economic conditions.²⁷ These rates usually have a “cap” that limits increases annually (e.g., 2% annual cap) and over the life of the loan (e.g., 5% lifetime cap).²⁸ Adjustable HECM rates comprise a market interest rate plus a fixed lender margin. Reverse mortgage interest rates generally tend to be slightly higher than those for traditional home equity loans or HELOCs.²⁹

In the UK, lifetime mortgages can have fixed or variable interest rates. Many popular products offer fixed rates or variable rates with a cap, and some allow for optional partial repayments to control the compounding interest.³⁰

What Happens to Your Reverse Mortgage if You Pass Away?

If you pass away, your heirs are responsible for repaying the loan balance. They typically have six months (with a possible 90-day extension) to satisfy the debt.³¹ Heirs can choose to:

Sell the property: The proceeds are used to repay the loan. If the sale price exceeds the loan balance, the remaining funds go to the heirs. Due to the “no negative equity guarantee” (for HECMs and most UK Lifetime Mortgages), heirs will never owe more than the home’s value.³²
Purchase the property: Heirs can buy the property for 95% of its appraised value (US HECM) or the full loan balance, whichever is less (in the UK, they would typically need to pay off the full loan balance).³³

What are the Potential Drawbacks of a Reverse Mortgage?

Despite the benefits, reverse mortgages come with significant considerations:

Risk of Foreclosure: Although you don’t make monthly payments, you can face foreclosure if you fail to meet your obligations to pay property taxes, homeowners insurance, HOA dues, or if you don’t maintain the property, or if you cease to live in the home as your primary residence.³⁴
Reduced Home Equity: A reverse mortgage reduces the equity in your home over time, which means less inheritance will be left to your heirs.
Complexity and Scams: Reverse mortgages are complex financial products.³⁵ Unfortunately, the industry has been prone to scams and deceptive practices. The Consumer Financial Protection Bureau (CFPB) in the US has taken action against lenders for issues like poor communication, inadequate staffing, preventable foreclosures, and deceptive marketing.
- Common Scams to Watch Out For: Scammers may target veterans, or involve home contractors (convincing homeowners to take out a reverse mortgage for unnecessary or overpriced repairs).³⁶ Always be wary of unsolicited offers, high-pressure tactics, or anyone suggesting “free money” or pushing you into an investment product.
- Protection: Always consult with a HUD-certified counselor (US) or an FCA-regulated equity release advisor (UK), and have a trusted family member or legal counsel review all documents. Do not sign blank forms or give control of your funds to anyone else.

In conclusion, while a reverse mortgage can provide much-needed financial flexibility for older homeowners who wish to remain in their homes, it’s a significant financial decision that requires thorough understanding, careful consideration of all terms and costs, and independent, expert advice to mitigate the risks involved.