Reverse Mortgage on a Paid-Off House

Who Qualifies: The Basic HECM Requirements

Federal law sets the starting age. The statute defines an "elderly homeowner" as a homeowner "who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe" (12 U.S.C. § 1715z-20(b)(1)). HUD's regulation adds the timing: "The youngest borrower shall be 62 years of age or older at the time of loan closing" (24 C.F.R. § 206.33).

Living in the home. The home must be the principal residence of each borrower at closing, and of any Eligible Non-Borrowing Spouse (24 C.F.R. § 206.39(a)). The CFPB describes a principal residence as the place a person lives the majority of the year.

The kind of property. The statute requires a dwelling designed principally for a 1- to 4-family residence in which the borrower occupies one of the units (12 U.S.C. § 1715z-20(d)(3)). HUD's lender guide says the property must also meet FHA property standards and flood requirements. HUD publishes the full list of allowed property types.

Counseling first. The borrower must receive counseling from an independent third party. That counselor cannot be connected to, or paid by, anyone originating or servicing the loan, funding it, or selling annuities, investments, long-term care insurance or other financial products (12 U.S.C. § 1715z-20(d)(2)(B)). HUD keeps a counselor roster on its program page.

No federal debt. The CFPB's eligibility guidance says a borrower cannot owe federal debt, such as federal income taxes or federal student loans. It adds that money from the reverse mortgage may be used to pay that debt off.

The lender's review. The statute also allows HUD to set additional requirements. The lender reviews each application under those rules, and approval is never automatic.

How the Money Can Reach You: Payment Options

A family weighing this loan often wants to know how the money actually arrives. The statute lets the borrower choose among methods (12 U.S.C. § 1715z-20(d)(9)):

• A line of credit. Money is drawn as needed.
• Term payments. Monthly payments over a period of years the borrower picks.
• Term plus a line of credit. A mix of the two.
• Tenure payments. Monthly payments over the borrower's tenure in the home.
• Tenure plus a line of credit. Another mix.
• Any other basis HUD considers appropriate. The CFPB lists a lump sum, which takes all available funds at once.

The CFPB explains that tenure payments continue as long as the borrower keeps the reverse mortgage and the payout does not push the balance past the amount stated in the mortgage. It also notes that a lump sum may provide less than other options. Generally, a borrower may switch payment methods during the loan. The exception is a fixed-rate loan, where HUD may limit switching by regulation (12 U.S.C. § 1715z-20(d)(10)). The lender explains which options come with a fixed or an adjustable rate.

The line of credit has a growth feature. Any part of the line left unused keeps growing, up to a maximum stated in the mortgage, according to the CFPB's payment-options guidance.

The amount available is called the principal limit. The CFPB says it depends on age, the interest rate and the home's value. HUD's program page lists the factors as including the age of the youngest borrower or Eligible Non-Borrowing Spouse. They also include the lesser of the appraised value, the HECM limit or the sales price.

That HECM limit is the maximum claim amount. HUD's Mortgagee Letter 2025-22 sets it at $1,249,125 for case numbers assigned from January 1, 2026, through December 31, 2026. HUD updates this figure and publishes the new one. Whatever the payment plan, every dollar paid out adds to a balance that grows with interest. The borrower's duties on taxes, insurance and upkeep continue the whole time.

What This Loan Actually Costs: Fees, Insurance, and the Growing Balance

The question underneath the payment options is simple: what does this loan cost? The costs come in several categories:

• An origination fee. This is the lender's charge for making the loan. Federal rules limit it, it may be fully financed into the loan (12 U.S.C. § 1715z-20(r)(3)), and the lender discloses the actual amount.
• Mortgage insurance premiums. FHA charges these for insuring the loan. HUD's Mortgagee Letter 2017-12 set the initial premium at 2.00% of the maximum claim amount and the annual premium at 0.50% of the outstanding balance, for case numbers assigned on or after October 2, 2017. HUD publishes any later change.
• Closing costs. These include third-party charges such as an appraisal and title work.
• Interest. It is charged on the money borrowed and on the amounts already added to the balance.

Before closing, the lender must disclose all costs and must say clearly which charges are required to get the loan and which are not (12 U.S.C. § 1715z-20(d)(2)(C)). The lender must also give a statement of the projected total cost (12 U.S.C. § 1715z-20(e)(4)).

Here is why the balance grows. With an ordinary mortgage, monthly payments shrink what is owed. With a reverse mortgage, nothing is paid each month, so interest and premiums are added to the balance instead. The Federal Trade Commission warns that this can use up much, or even all, of the home's equity.

There is a limit on what can be owed. The loan is non-recourse, meaning the homeowner is not liable for any shortfall between the balance and what is recovered from the net sale proceeds or the FHA insurance benefits (12 U.S.C. § 1715z-20(d)(7)). The FTC puts it plainly: the borrower or the estate cannot owe more than the home's value when the loan comes due and the home is sold.

One duty stays in place throughout. Failing to pay property charges such as taxes and insurance can make the loan due, as the next section explains.

What Happens to Your Home — and the Loan — Later

Adult children often ask this first: whose house is it? It stays the borrower's. The lender holds a lien, not ownership.

The loan comes due in set situations. HUD's regulation says the balance is due in full if a borrower dies and the home is not the principal residence of at least one surviving borrower, unless a Deferral Period for an Eligible Non-Borrowing Spouse applies. It is also due if a borrower conveys all title and no other borrower keeps title (24 C.F.R. § 206.27(c)(1)).

With HUD's approval, the loan can also become due if any of these occur (24 C.F.R. § 206.27(c)(2)):

• The home stops being a borrower's principal residence for a reason other than death, and no other borrower lives there.
• A borrower is away for longer than 12 consecutive months because of physical or mental illness, and no other borrower lives there.
• The borrower does not provide for paying property charges.
• Another obligation under the mortgage is not performed.

When the loan comes due, the CFPB says it is usually repaid by selling the home. Heirs who want to keep the house may repay the balance instead. If the home sells for more than the balance, the remaining equity goes to the borrower or the estate. If it sells for less, the non-recourse rule described above applies, and FHA insurance pays the lender.

A spouse who is not a borrower has special rules. The CFPB's guidance on a borrower's death says that for HECMs with case numbers assigned on or after August 4, 2014, the spouse may stay without paying off the loan if they qualify as an Eligible Non-Borrowing Spouse. The requirements include being named in the loan documents. They also include living in the home at closing and continuing to live there as a principal residence. Such a spouse receives no money from the loan. HUD publishes the full requirements, and the CFPB notes that an attorney or a HUD-approved housing counseling agency can help with them.

Alternatives Worth Knowing Before Deciding

Owning a home free and clear opens several doors, not one. A HECM counselor must discuss options other than a reverse mortgage, including other housing, social service, health and financial options (12 U.S.C. § 1715z-20(f)(1)). Here are the main ones, each explained from the start:

• Home equity loan. A second loan that pays a lump sum up front. It trades that cash for monthly principal-and-interest payments from the start.
• Home equity line of credit (HELOC). A credit line to draw from as needed. It usually has a draw period, then a repayment period, and it requires monthly payments.
• Cash-out refinance. A new first mortgage that pays out part of the equity. It trades a paid-off home for a new monthly mortgage payment.
• Selling and downsizing. Moving to a less costly home frees equity with no loan, but it means leaving the house.
• Renting out part of the home. A room or a unit can bring in income, but it brings a tenant and a landlord's duties.

Help with expenses is another path. The CFPB notes that state and local programs can help with utilities, fuel and home repairs, and that many localities offer property tax help through the county or town tax office. Benefit programs such as Supplemental Security Income may also apply, depending on a person's own facts.

A side-by-side look at the reverse mortgage vs home equity loan shows the core tradeoff: no monthly payment and a growing balance, against monthly payments and a shrinking one. Several ways to borrow against a paid-off house work very differently over time.

A reverse mortgage is one option among several. Which one fits depends on the homeowner's situation, goals and obligations. A reverse mortgage is not a fit for every homeowner. Someone who plans to move soon, or who wants to leave the full equity to heirs, may find that another option fits better.