How a Reverse Mortgage Works, Step by Step

What happens when you take out a reverse mortgage

A reverse mortgage lets you borrow against the equity in your home without making monthly payments back. Instead, the loan balance grows over time as interest and fees accumulate. When you sell the home, move out permanently, or pass away, the loan becomes due — typically paid from the sale of the house or from your estate.

The process starts with a counseling session (required by federal law), moves through underwriting and appraisal, and ends with you receiving funds. How you receive the money — as a lump sum, monthly payments, a line of credit, or a combination — is your choice and affects how fast the balance grows.

Key Takeaways

• You must be at least 62 years old, own your home outright or have a small mortgage balance, and live in it as your primary residence to take out a reverse mortgage.
• A third-party counselor (not the lender) must review your situation before you can proceed, and this counseling is free through HUD-approved agencies.
• The loan balance grows each month as interest and mortgage insurance premiums are added, and you owe nothing until you sell, move, or pass away.
• How you receive funds — lump sum, monthly payments, or line of credit — changes how quickly the balance grows and how much you can borrow overall.
• The lender cannot force you out of your home as long as you pay property taxes, homeowners insurance, and maintain the house, even if the loan balance exceeds the home's value.

The three basic requirements before you can proceed

You must be at least 62 years old and own your home as your primary residence. If you still have a mortgage, the balance must be small enough that the reverse mortgage proceeds can pay it off completely — you cannot have two mortgages at once on the same property.

The home itself must be a single-family house, a condo in an FHA-approved building, a townhouse, or a manufactured home built after 1976. Cooperative apartments and some condos in smaller buildings do not may have access to. A property appraiser will verify the home meets these standards during underwriting.

Mandatory counseling with an independent counselor

Before any lender can move forward, you must complete counseling with a HUD-approved agency — not with the lender themselves. This counselor reviews your finances, explains how the loan works, discusses alternatives like downsizing or a home equity line of credit, and makes sure you understand what happens to your heirs. The counseling is free and typically takes one to two hours, either in person or by phone.

You will receive a certificate of completion to give to your lender. Without it, the lender cannot proceed. If you are married, both spouses should attend, though only the borrower needs the certificate. The counselor's job is to protect you, not to sell you the loan — they work for an independent nonprofit, not the lender.

How the application and appraisal work

After counseling, you submit an application to the lender with basic financial information and authorization for a credit check. The lender orders an appraisal to determine your home's current value — this typically costs $400 to $600 and is paid from your loan proceeds. The appraisal also confirms the property meets FHA standards.

Underwriting usually takes two to four weeks. The lender reviews your credit, income, and assets to confirm you can pay property taxes, insurance, and maintenance costs going forward. Unlike a traditional mortgage, they are not checking whether you can make monthly payments — they are checking whether you can keep the house in good condition and current on obligations. If you have unpaid property taxes or a history of not maintaining the home, the lender may deny the loan.

Choosing how to receive your money

Once approved, you decide how to take the funds. A lump sum gives you all available money at closing. A monthly payment (called a tenure payment) continues for as long as you live in the home. A line of credit lets you draw what you need, when you need it, and you pay interest only on what you actually borrow. Many borrowers choose a combination — for example, a small monthly payment plus a line of credit for emergencies.

Your choice matters because interest starts accruing immediately on whatever amount you receive or have available. A lump sum means the full balance starts growing right away. A line of credit means you pay interest only on money you actually draw. Monthly payments spread the borrowing over time. The lender will show you projections for each option so you can see how the balance grows under each scenario.

What happens at closing and after

At closing, you sign loan documents and receive funds according to your chosen payment method. You remain the owner and are responsible for property taxes, homeowners insurance, HOA fees (if applicable), and home maintenance. The lender has a lien on the property but cannot force you to sell or leave as long as you meet these obligations.

Each month, interest and mortgage insurance premiums are added to your loan balance. You receive an annual statement showing the current balance. The loan does not come due while you live in the home — there are no monthly payments to make. When you sell the house, move to a nursing home or assisted living facility permanently, or pass away, the loan becomes due. Your heirs can pay it off from the sale proceeds, refinance it into a traditional mortgage, or let the lender sell the home to recover what is owed.

What protections exist if the loan balance grows larger than the home's value

Federal law protects you and your heirs from owing more than the home is worth. If the loan balance exceeds the home's value when it comes due, the lender absorbs the loss — your heirs do not owe the difference. This protection is funded by the mortgage insurance premium you pay as part of the loan.

However, this protection only applies if you have met your obligations: paying property taxes, maintaining insurance, and keeping the home in reasonable condition. If you stop paying taxes or let the house fall into disrepair, the lender can call the loan due and begin foreclosure proceedings. The key is staying current on the costs of homeownership itself, not making payments to the lender.

Frequently Asked Questions

Can my spouse stay in the home if I pass away?

If your spouse is on the loan as a borrower, yes — the loan does not come due. If your spouse is not a borrower, the loan typically becomes due within a set period (usually six months to a year), though your spouse may be able to refinance or work with the lender on alternatives. This is an important detail to discuss with the lender before closing.

What if I need to move to a nursing home?

If you move to a nursing home or assisted living facility permanently, the loan comes due, usually within 12 months. If you move temporarily for rehabilitation and return home, the loan does not come due. The lender will ask for documentation of your situation. Planning for this possibility before taking the loan out is important.

Can the lender raise the interest rate after I close?

If you choose a fixed-rate lump sum, the rate never changes. If you choose an adjustable rate (which allows monthly payments or a line of credit), the rate can adjust, usually once a month or once a year depending on the loan terms. The lender will explain the rate structure before closing.

What if I want to pay back part of the loan early?

You can pay back any amount at any time without penalty. Some borrowers make occasional payments to slow the balance growth, though this is not required. There is no prepayment penalty on a reverse mortgage.

How much can I borrow?

The amount depends on your age, the home's value, current interest rates, and which payment option you choose. Generally, the older you are and the more valuable your home, the more you can borrow. The lender will provide a specific number during underwriting based on your situation.