Reverse mortgages are a unique financial product designed for homeowners aged 62 or older, allowing them to convert a portion of their home equity into cash without the need to sell their home or make monthly mortgage payments. The loan is repaid when the borrower moves out of the home, sells the property, or passes away. The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). Reverse mortgages can provide retirees with additional income, helping them cover living expenses, medical bills, or home improvements while allowing them to stay in their homes.

To qualify for a reverse mortgage, the borrower must be at least 62 years old and own their home outright or have a significant amount of equity—typically at least 50%. The home must be the borrower’s primary residence, meaning they must live in the home for the majority of the year. Unlike traditional mortgages, reverse mortgages do not have strict income or credit score requirements, though lenders do assess the borrower’s financial ability to cover ongoing property expenses, such as property taxes, homeowners insurance, and maintenance. If these obligations are not met, the borrower risks foreclosure.

The primary benefit of a reverse mortgage is that it provides homeowners with flexible options for accessing their home equity. Borrowers can choose to receive the funds as a lump sum, monthly payments, a line of credit, or a combination of these options. Unlike traditional loans, there are no monthly mortgage payments required, and the borrower remains in control of their home. The loan balance increases over time as interest and fees accrue, but repayment is only required when the borrower no longer lives in the home. Importantly, HECM loans are non-recourse, meaning the borrower (or their estate) will never owe more than the home’s value at the time of sale, even if the loan balance exceeds that amount.

Reverse mortgages are especially beneficial for retirees who are "house rich but cash poor" and need additional income to cover expenses. This loan option allows them to stay in their home and tap into its value without selling or downsizing. However, it’s important to understand that reverse mortgages reduce the amount of equity left in the home for heirs and can come with higher fees and closing costs than traditional loans. For those who plan to remain in their home long-term and have sufficient resources to maintain the property, reverse mortgages can be a valuable financial tool to enhance retirement income and improve financial security.