Yes, but not in the way a traditional mortgage works
With a reverse mortgage, you do not make monthly payments to the lender. Instead, the loan balance grows over time as interest and fees accumulate. You owe nothing until you move out, sell the home, or pass away — at which point the full amount (principal plus interest) becomes due, usually paid from the sale of the home.
This is the opposite of a standard mortgage, where you pay down the balance each month. On a reverse mortgage, the balance goes up. The lender advances money to you, and you pay nothing during your occupancy. This can be attractive to older homeowners who need cash but want to stay in their home, but it also means the debt grows larger every month.
Key Takeaways
- You make no monthly payments on a reverse mortgage while you live in the home; the loan balance increases instead.
- Interest, mortgage insurance, and servicing fees compound monthly, so the total amount owed grows significantly over time.
- You must still pay property taxes, homeowners insurance, and maintenance costs out of your own funds or the reverse mortgage proceeds.
- The full loan balance becomes due when you move, sell the home, or pass away, typically paid from home sale proceeds.
- If the home sells for less than the loan balance, the lender absorbs the loss — you or your heirs do not owe the difference.
How the balance grows without your payments
A reverse mortgage works by having the lender pay you — either as a lump sum, monthly payments, a line of credit, or a combination. You receive the money, but you do not repay it monthly. Instead, interest accrues on the outstanding balance every month, and that interest is added to what you owe.
On a Home Equity Conversion Mortgage (HECM), which is the most common type and is insured by the Federal Housing Administration, you also pay an upfront mortgage insurance premium (usually 2% of the home value) and an annual mortgage insurance premium (0.5% of the loan balance each year). These fees are added to your loan balance, not paid separately. Servicing fees also accrue monthly and are rolled into the debt.
Over time, this compounding effect means the loan balance can grow to a substantial portion of your home's value. If you take out a reverse mortgage at age 62 and live another 25 years, the balance could easily double or triple, depending on interest rates and how much you borrowed.
What you still have to pay out of pocket
Even though you do not make loan payments, you remain responsible for certain costs. Property taxes must be paid in full and on time — if you fall behind, the lender can call the loan due. Homeowners insurance is also required and must be maintained. Home maintenance and repairs are your responsibility, and the lender may require proof that the home is being kept in good condition.
You can use the funds from the reverse mortgage to cover these costs, but you must budget for them. Many borrowers use part of their reverse mortgage proceeds to pay property taxes and insurance upfront or to set aside money for these ongoing expenses. If you cannot or do not pay these costs, you risk losing the home.
When the loan becomes due and payable
The reverse mortgage loan is due when one of these events occurs: you move out of the home for more than 12 consecutive months, you sell the home, you pass away, or you fail to pay property taxes or insurance. At that point, the entire loan balance — principal plus all accumulated interest and fees — must be repaid.
In most cases, the home is sold to pay off the loan. If the sale price is higher than what you owe, you or your heirs keep the difference. If the sale price is lower than the loan balance, the FHA insurance (on an HECM) covers the shortfall, and neither you nor your heirs owe anything more. This is called a non-recourse loan, and it is a key protection of reverse mortgages.
If you pass away, your heirs have time to decide what to do. They can sell the home and pay off the loan, refinance the reverse mortgage into a traditional mortgage in their name, or walk away. If they walk away, the lender sells the home and uses the proceeds to pay off the debt.
The difference between a reverse mortgage and a home equity line of credit
A home equity line of credit (HELOC) is different from a reverse mortgage in one critical way: you make monthly payments on a HELOC, at least during the draw period. With a reverse mortgage, you do not. This makes a reverse mortgage appealing to retirees on fixed incomes who cannot afford monthly payments, but it also means the debt grows faster.
A HELOC typically has a lower interest rate and lower fees than a reverse mortgage, but it requires you to may have access to based on income and credit. A reverse mortgage requires you to be at least 62 years old and have significant home equity, but does not require income verification. The choice depends on your age, income, and whether you want to make payments or let the balance grow.
How interest rates and fees affect what you owe
The interest rate on a reverse mortgage is typically higher than on a standard mortgage. As of recent years, rates have ranged from around 7% to 10% or higher, depending on market conditions and the lender. The exact rate you receive depends on the type of reverse mortgage, the lender, and current market rates.
In addition to interest, you pay an upfront mortgage insurance premium of about 2% of your home's value (or the FHA lending limit, whichever is lower) and an annual premium of 0.5% of the loan balance. On a $300,000 home, the upfront insurance alone could be $6,000. These costs are added to your loan balance, so you pay interest on them as well.
Over 20 years, these compounding costs can mean you owe significantly more than you originally borrowed. A $150,000 reverse mortgage at 8% interest with insurance fees could grow to $400,000 or more by year 20. This is why it is important to understand the long-term cost before taking out a reverse mortgage.
Frequently Asked Questions
What happens if I want to pay down the balance early?
You can pay down a reverse mortgage balance at any time without penalty. Some borrowers make occasional payments to slow the growth of the debt, though this is not required. Paying down the balance reduces the amount of interest that accrues in future months.
Can the lender force me to move out if the balance gets too large?
No. As long as you live in the home, pay property taxes and insurance, and maintain the property, the lender cannot force you out based on the loan balance alone. The loan is due only when you move, sell, or pass away.
What if I outlive my home's value?
On an FHA-insured reverse mortgage (HECM), the lender cannot pursue you or your heirs for the difference if the home sells for less than the loan balance. The insurance covers the loss. This is the non-recourse protection built into most reverse mortgages.
Do I have to take all the money at once?
No. You can set up a reverse mortgage as a line of credit and draw funds as you need them, or arrange for monthly payments from the lender. You only pay interest on the amount you have actually borrowed, not on the full available credit.
What if I need to move to assisted living or a nursing home?
If you move out for more than 12 consecutive months, the loan becomes due. You would need to sell the home or have someone else refinance it to pay off the reverse mortgage. This is an important consideration if you think you may need to move to a care facility.