If you or someone you know doesn't need any money right now, keep reading, as Reverse mortgages are a financial tool, for those aged 62 years older and above. Reverse Mortgages, sometimes called a Home Equity Conversion Mortgage (HECM), are mortgages that allow seniors to convert their home equity into cash flow. They can do this while staying in their homes, or even purchase a new home with a reverse mortgage loan. This can be great for those who do not qualify for a cash-out refinance and need the cash for various life expenses.

In this blog, we will dive deep into how these types of loans work, who is eligible, reverse mortgage pros and cons, and debunk any myths you've heard about them. If you or someone you love are aged 62 years and older, you'll want to know about this. 

 

What is a Reverse Mortgage?

The Federal Housing Administration (FHA) created this type of loan to help address the financial needs of older homeowners and their families.

 Usually, when you buy a home, you amortize, or pay your loan down so you own your mortgage free and clear. With a reverse mortgage, the loan is negatively amortized, which means the loan amount goes up. You still own your home, but your lender pays you with the equity the borrower earned over the years. A homeowner receiving the monthly payments, instead of paying them out, can be a great option for those who need to supplement their retirement, pay off other debt like medical bills, or help assist with the costs of long-term care.

 

Types of Reverse Mortgages 

There are several different types of reverse mortgages. 

HECM

The most common, as stated above, is called the Home Equity Conversion Mortgage (HECM). This loan is backed by the FHA, so it has some caveats on the property standards and as of 2025, has a lending limit of $1,209,750. With a HECM, the home needs to meet FHA standards, and the borrower has to take good care of the property. To be clear, even though the lender is paying the borrower ‘a mortgage payment’, the borrower must still be able to pay Home Owners Insurance (HOI) and Property Taxes. With all FHA loans, the borrowers must complete a homeowners financial counseling session, to prove that they understand the process. 

 

Proprietary Reverse Mortgages

This type of reverse mortgage, also known as a jumbo reverse mortgage, is designed for homeowners with high-value properties that exceed FHA’s HECM loan limits. Unlike HECMs, Proprietary reverse mortgages are offered by private lenders and are not backed by the federal government. Because they are not FHA-insured, borrowers are not required to pay for mortgage insurance or complete financial counseling.

One of the biggest advantages of a jumbo reverse mortgage is the higher loan limits, making it a strong option for those with substantial home equity in properties valued above the $1,209,750 HECM cap. This type of loan provides flexibility for homeowners looking to access a larger portion of their equity while still benefiting from the features of a reverse mortgage.

 

Single-Purpose Reverse Mortgages

These loans are the most affordable type of reverse mortgages. These are offered by state/local governments or nonprofits for eligible borrowers. The caveat is that the funds are used for specific purposes, such as home repairs, improvements, or paying property taxes. 

 

General Qualifications for a Reverse Mortgage

Because a reverse mortgage is a unique loan product, there are unique qualifying requirements to ensure borrowers can maintain the loan long-term.

To qualify, the borrower must be at least 62 years old. Brokers at X2 Mortgage will also assess the borrower's financial situation by verifying income, assets, monthly living expenses, and credit history. This helps determine whether the borrower can continue to afford essential home-related costs. Probably the most obvious requirement is that the borrower has to have enough equity from their home, as they can receive up to 50-60% of their equity value.

Other key requirements include:

Primary Residence Requirement – The reverse mortgage must be on the borrower’s primary residence. Vacation homes and investment properties do not qualify.

Financial Responsibility – The borrower must demonstrate the ability to pay property taxes, homeowners insurance, and home maintenance costs.

Eligible Property Types – The home must meet FHA guidelines and be one of the following:

Single-family home

FHA-approved condo

Townhouse

Multi-family property (up to four units, with the borrower living in one)

Manufactured home that meets FHA requirements

These requirements are designed to protect both the borrower and the lender, as with any loan X2 Mortgage does. Every loan approval is based on a risk assessment, and we are trained to ensure that homeowners can safely use a reverse mortgage as a financial tool while maintaining their home and financial stability.

 

How do borrowers receive the funds?

Borrowers have several options for receiving funds once the reverse mortgage is closed, allowing them to choose the structure that best fits their financial needs.

Lump Sum – Borrowers can receive the entire loan amount upfront, which is ideal for those who need a large sum immediately.

Line of Credit – This option provides flexible access to funds, allowing borrowers to withdraw money as needed.

Monthly Payments – Borrowers can opt for fixed monthly payments or term-based payments, ensuring a steady stream of income over time.

Combination Option – Some borrowers choose a mix of options, receiving a portion of the funds upfront while keeping the rest in a line of credit for future use.

This flexibility allows homeowners to tailor their reverse mortgages to their financial goals and cash flow needs.

 

When Does the Loan Need to Be Repaid?

The loan must be repaid when certain conditions are met. These are called loan repayment triggers, and they include three different ways:

Selling the home – If the borrower decides to sell the home, the proceeds must first be used to repay the reverse mortgage balance.

Moving out permanently – The home must remain the borrower's primary residence. If they move into a nursing home or another long-term care facility for more than 12 months, the loan becomes due.

Passing away – When the last borrower or eligible spouse passes away, heirs are responsible for repaying the loan. They have choices: they can either choose to sell the home to cover the balance, refinance the loan to keep the home or pay off the loan using other assets.

Since reverse mortgages are non-recourse loans, heirs will never owe more than the home’s value, even if the loan balance exceeds the home's worth. This is to protect the heirs, as they won't be expected to pay any deficit if the property’s value cannot repay the loan when the borrower dies. 

 

Pros and Cons of Reverse Mortgages

Like any loan, a reverse mortgage can be a great option for the right person and financial scenario. Be sure to consult with your X2 Mortgage Loan Officer, who has extensive experience with all kinds of loans, including reverse mortgages.

Pros:

No monthly mortgage payments – Helps seniors manage expenses on a fixed income.

Access to cash – Converts home equity into usable funds.

Stay in your home – Unlike selling, you retain ownership and residence.

Flexible payout options – Choose from a lump sum, monthly payments, or a line of credit.

HECMs are FHA-insured and provide additional protection for borrowers.

Non-recourse loan – Borrowers or heirs never owe more than the home’s value.

Cons:

Loan balance grows – As interest accrues, home equity decreases over time.

Heirs may need to sell the home – If they cannot repay the loan balance.

Upfront costs can be high – Includes origination fees, mortgage insurance, and closing costs.

Not ideal for short-term needs – Designed for long-term financial planning rather than short-term solutions.

Ongoing financial responsibilities – Borrowers must continue paying property taxes, homeowners insurance, and maintenance costs to avoid foreclosure.

A reverse mortgage can be a valuable financial tool, but it is important to weigh the pros and cons carefully. Contact X2 Mortgage to discuss your options and determine if a reverse mortgage is the right fit for your financial goals.

 

Reverse Mortgage Myths vs. Facts 

Many myths come up around reverse mortgages, which is a shame as misinformation steers people away from using a valuable tool. 

Myth: The bank owns your home.

 Fact: Just as in any loan, Homeowners retain title and ownership and the lender owns the lien. 

 

Myth: You can lose your home.

 Fact: Only if property taxes, insurance, or maintenance are neglected, and the borrower doesn't pay what the contract says.

 

Myth: You can’t leave your home to heirs.

 Fact: Heirs can refinance, pay off, or sell the home.

 

Myth: Only desperate people use reverse mortgages.

 Fact: Many financially savvy seniors use them for strategic wealth management.

 

Costs of a Reverse Mortgage

If a HECM sounds good to you, you may be wondering, how much will this cost me? From closing costs to ongoing fees, we are going to break it down so you know what to expect. 

 

Upfront costs: Just like in any other mortgage loan, you will have one-time upfront costs at the closing table. You can roll these costs into your loan, and the costs will be subtracted from the total reverse mortgage proceeds.

Counseling fee: If you are getting an HECM, you will have the Mortgage/Financial Counseling fee, usually around 125$. 

Origination fee: At X2 Mortgage, we believe great service doesn't have to come with a fee. We do not charge our borrowers processing fees, which helps you keep more in your pocket. Origination fees can be around 1-4% of the loan amount, but these fees are capped by the FHA.

Appraisal: You will need to get your home appraised to see what the value is, and how much you can take out. These usually average out to 400-600 dollars. 

Closing costs: These costs include title fees, recording fees with your county, mortgage taxes, credit checks, etc. 

First mortgage insurance premium: The initial premium is limited to 2% of the home value. For example, you pay 6,000 for a 300k value of a home. This fee is paid to the FHA. 

 

Ongoing Costs of a Reverse Mortgage

Once you take out a reverse mortgage, there are ongoing costs that will be added to your loan balance each month. These expenses depend on factors like loan amount, interest rate, and how long you keep the loan. To keep costs manageable, it’s best to borrow only what you need.

Types of Ongoing Costs

1. Interest Charges

Just like a traditional mortgage, interest accrues on a reverse mortgage over time. However, unlike a standard mortgage, there are no required monthly payments, and the interest is added to the loan balance instead of being paid down each month.

Borrowers have two interest rate options:

Fixed Rate – Offers a steady, predictable interest rate, but funds must be taken as a lump sum, which may limit the total amount available.

Adjustable Rate – The interest rate fluctuates over time (and you will be kept aware when it changes), but this option allows for flexible payout methods, including monthly disbursements, a line of credit, or a combination of both. Interest is only charged on the amount withdrawn, which can help manage loan costs.

Discussing these options with an X2 Mortgage loan officer can help you determine which structure best suits your financial situation.

2. Servicing Fees

 Some lenders charge a monthly servicing fee, typically $35 or less, to cover administrative costs such as managing loan disbursements, issuing account statements, and ensuring loan compliance. 

3. Annual Mortgage Insurance Premium (MIP)

 FHA-insured reverse mortgages require mortgage insurance, which protects both borrowers and lenders. In addition to the initial MIP paid at closing, borrowers must pay an annual premium of 0.5% of the outstanding loan balance. This amount is added to the loan each month and accrues interest over time.

4. Property-Related Costs

 While reverse mortgage borrowers do not have to make monthly loan payments, they are still responsible for essential homeownership costs, including:

Property taxes

Homeowners Insurance

Flood insurance (if required)

Homeowners Association (HOA) fees

Ongoing home maintenance

Borrowers must demonstrate sufficient income to cover these expenses. Failure to maintain property-related costs can lead to loan default, so it’s important to plan for these ongoing financial responsibilities.

 

Alternatives to Reverse Mortgages

A reverse mortgage is not the only option for accessing home equity or supplementing retirement income. Depending on your financial situation and long-term goals, these alternatives may be worth considering:

Home Equity Line of Credit (HELOC) – A HELOC allows homeowners to borrow against their home equity with lower fees than a reverse mortgage. However, it requires monthly payments, which may be a drawback for retirees on a fixed income.

Refinancing – Refinancing an existing mortgage or taking out a new mortgage with a cash-out option can provide a lump sum of money while potentially securing a lower interest rate. Unlike a reverse mortgage, refinancing requires monthly payments on the home.

Downsizing – Selling a home and purchasing a smaller, more affordable property can free up cash while reducing living expenses, property taxes, and maintenance costs. This can be a good option for those who no longer need a large home.

Renting out part of the home – Homeowners who have extra space may consider renting out a portion of their home, such as a basement apartment or spare bedroom, to generate additional income while keeping their property.

Government assistance programs – Many states and local governments offer financial aid programs for seniors, including property tax relief, utility assistance, and home repair grants. Exploring these programs may provide financial support without taking on a loan.

 

Before making a decision, it is important to compare these options with a reverse mortgage to determine the best fit for your financial needs and lifestyle. Consulting with a financial advisor or an X2 Mortgage professional can help guide you toward the right choice.

 

Conclusion & Final Thoughts

A reverse mortgage can be a valuable financial tool for seniors looking to supplement their retirement income, eliminate monthly mortgage payments, or access home equity without selling their home. However, it is not a one-size-fits-all solution. Understanding how these loans work, their benefits and drawbacks, and whether they align with your long-term financial goals is essential before making a decision.

If you are 62 or older and considering a reverse mortgage, take the time to explore your options. Choosing the right financial path is crucial, and having expert guidance can make all the difference. At X2 Mortgage, we specialize in helping homeowners navigate their options with tailored advice and solutions for their financial needs.

Contact us today for a no-obligation consultation to determine whether a reverse mortgage is the right solution for you. Our experienced loan officers are here to answer your questions, review your financial situation, and help every step of the way.