Federal Trade Commission | ftc.gov

Reverse 

Mortgages

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I

f you’re 62 or older — and looking for money to finance 

a home improvement, pay off your current mortgage, 

supplement your retirement income, or pay for healthcare 

expenses — you may be considering a reverse mortgage. 

It’s a product that allows you to convert part of the equity 

in your home into cash without having to sell your home 

or pay additional monthly bills.

The Federal Trade Commission (FTC), the nation’s 

consumer protection agency, wants you to understand how 

reverse mortgages work, the types of reverse mortgages 

available, and how to get the best deal.

In a “regular” mortgage, you make monthly payments to 

the lender. In a “reverse” mortgage, you receive money 

from the lender, and generally don’t have to pay it back 

for as long as you live in your home. The loan is repaid 

when you die, sell your home, or when your home is 

no longer your primary residence. The proceeds of a 

reverse mortgage generally are tax-free, and many reverse 

mortgages have no income restrictions.

Types of Reverse Mortgages

There are three types of reverse mortgages:

► single-purpose reverse mortgages, offered by some 

state and local government agencies and nonprofit 

organizations

► federally-insured reverse mortgages, known as 

Home Equity Conversion Mortgages (HECMs) and 

backed by the U. S. Department of Housing and 

Urban Development (HUD)

► proprietary reverse mortgages, private loans that are 

backed by the companies that develop them
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Single-purpose reverse mortgages are the least expensive 

option. They are not available everywhere and can 

be used for only one purpose, which is specified by 

the government or nonprofit lender. For example, the 

lender might say the loan may be used only to pay for 

home repairs, improvements, or property taxes. Most 

homeowners with low or moderate income can qualify for 

these loans.

HECMs and proprietary reverse mortgages may be more 

expensive than traditional home loans, and the upfront 

costs can be high. That’s important to consider, especially 

if you plan to stay in your home for just a short time 

or borrow a small amount. HECM loans are widely 

available, have no income or medical requirements, and 

can be used for any purpose.

Before applying for a HECM, you must meet with a 

counselor from an independent government-approved 

housing counseling agency. Some lenders offering 

proprietary reverse mortgages also require counseling. 

The counselor is required to explain the loan’s costs 

and financial implications, and possible alternatives to 

a HECM, like government and nonprofit programs or 

a single-purpose or proprietary reverse mortgage. The 

counselor also should be able to help you compare the 

costs of different types of reverse mortgages and tell 

you how different payment options, fees, and other costs 

affect the total cost of the loan over time. For a list of 

counselors, visit www.hud.gov or call 1-800-569-4287. 

Most counseling agencies charge around $125 for their 

services. The fee can be paid from the loan proceeds, but 

you cannot be turned away if you can’t afford the fee.
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How much you can borrow with a HECM or proprietary 

reverse mortgage depends on several factors, including 

your age, the type of reverse mortgage you select, the 

appraised value of your home, and current interest rates. 

In general, the older you are, the more equity you have in 

your home, and the less you owe on it, the more money 

you can get.

The HECM lets you choose among several payment 

options. You can select:

► a “term” option — fixed monthly cash advances for 

a specific time.

► a “tenure” option — fixed monthly cash advances 

for as long as you live in your home.

► a line of credit that lets you draw down the loan 

proceeds at any time in amounts you choose until 

you have used up the line of credit.

► a combination of monthly payments and a line of 

credit.

You can change your payment option any time for about 

$20.

HECMs generally provide bigger loan advances at a lower 

total cost compared with proprietary loans. But if you own 

a higher-valued home, you may get a bigger loan advance 

from a proprietary reverse mortgage. So if your home has 

a higher appraised value and you have a small mortgage, 

you may qualify for more funds.
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Loan Features

Reverse mortgage loan advances are not taxable, and 

generally don’t affect your Social Security or Medicare 

benefits. You retain the title to your home, and you 

don’t have to make monthly repayments. The loan must 

be repaid when the last surviving borrower dies, sells 

the home, or no longer lives in the home as a principal 

residence.

In the HECM program, a borrower can live in a nursing 

home or other medical facility for up to 12 consecutive 

months before the loan must be repaid.

If you’re considering a reverse mortgage, be aware that:

► Lenders generally charge an origination fee, a 

mortgage insurance premium (for federally-insured 

HECMs), and other closing costs for a reverse 

mortgage. Lenders also may charge servicing 

fees during the term of the mortgage. The lender 

sometimes sets these fees and costs, although 

origination fees for HECM reverse mortgages 

currently are dictated by law. Your upfront costs can 

be lowered if you borrow a smaller amount through 

a reverse mortgage product called a “HECM 

Saver.”

► The amount you owe on a reverse mortgage grows 

over time. Interest is charged on the outstanding 

balance and added to the amount you owe each 

month. That means your total debt increases as the 

loan funds are advanced to you and interest on the 

loan accrues.
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► Although some reverse mortgages have fixed rates, 

most have variable rates that are tied to a financial 

index: they are likely to change with market 

conditions.

► Reverse mortgages can use up all or some of the 

equity in your home, and leave fewer assets for 

you and your heirs. Most reverse mortgages have 

a “nonrecourse” clause, which prevents you or 

your estate from owing more than the value of your 

home when the loan becomes due and the home is 

sold. However, if you or your heirs want to retain 

ownership of the home, you usually must repay the 

loan in full — even if the loan balance is greater 

than the value of the home.

► Because you retain title to your home, you are 

responsible for property taxes, insurance, utilities, 

fuel, maintenance, and other expenses. If you don’t 

pay property taxes, carry homeowner’s insurance, 

or maintain the condition of your home, your loan 

may become due and payable.

► Interest on reverse mortgages is not deductible on 

income tax returns until the loan is paid off in part 

or whole.

Getting a Good Deal

If you’re considering a reverse mortgage, shop around. 

Compare your options and the terms various lenders offer. 

Learn as much as you can about reverse mortgages before 

you talk to a counselor or lender. That can help inform the 

questions you ask that could lead to a better deal.
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► If you want to make a home repair or improvement 

— or you need help paying your property taxes 

— find out if you qualify for any low-cost singlepurpose loans in your area. Area Agencies on Aging 

(AAAs) generally know about these programs. To 

find the nearest agency, visit www.eldercare.gov

or call 1-800-677-1116. Ask about “loan or grant 

programs for home repairs or improvements,” 

or “property tax deferral” or “property tax 

postponement” programs, and how to apply.

► All HECM lenders must follow HUD rules. And 

while the mortgage insurance premium is the same 

from lender to lender, most loan costs, including 

the origination fee, interest rate, closing costs, and 

servicing fees vary among lenders.

► If you live in a higher-valued home, you may be 

able to borrow more with a proprietary reverse 

mortgage, but the more you borrow, the higher your 

costs. The best way to see key differences between 

a HECM and a proprietary loan is to do a side-byside comparison of costs and benefits. Many HECM 

counselors and lenders can give you this important 

information.

► No matter what type of reverse mortgage you’re 

considering, understand all the conditions that could 

make the loan due and payable. Ask a counselor 

or lender to explain the Total Annual Loan Cost 

(TALC) rates: they show the projected annual 

average cost of a reverse mortgage, including all the 

itemized costs.
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Be Wary of Sales Pitches

Some sellers may offer you goods or services, like home 

improvement services, and then suggest that a reverse 

mortgage would be an easy way to pay for them. If you 

decide you need what’s being offered, shop around before 

deciding on any particular seller. Keep in mind that the 

total cost of the product or service is the price the seller 

quotes plus the costs — and fees — tied to getting the 

reverse mortgage.

Some who offer reverse mortgages may pressure you to 

buy other financial products, like an annuity or long term 

care insurance. Resist that pressure. You don’t have to 

buy any products or services to get a reverse mortgage 

(except to maintain the adequate homeowners or hazard 

insurance that HUD and other lenders require). In fact, 

in some situations, it’s illegal to require you to buy other 

products to get a reverse mortgage.

The bottom line: If you don’t understand the cost or 

features of a reverse mortgage or any other product 

offered to you — or if there is pressure or urgency to 

complete the deal — walk away and take your business 

elsewhere. Consider seeking the advice of a family 

member, friend, or someone else you trust.

Your Right to Cancel

With most reverse mortgages, you have at least three 

business days after closing to cancel the deal for any 

reason, without penalty. To cancel, you must notify the 

lender in writing. Send your letter by certified mail, and 

ask for a return receipt. That will allow you to document 
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what the lender received and when. Keep copies of your 

correspondence and any enclosures. After you cancel, the 

lender has 20 days to return any money you’ve paid up to 

then for the financing.

Reporting Possible Fraud

If you suspect that someone involved in the transaction 

may be violating the law, let the counselor, lender, or loan 

servicer know. Then, file a complaint with the Federal 

Trade Commission (www.ftc.gov), your state Attorney 

General’s office (www.naag.org), or your state banking 

regulatory agency (www.csbs.org).

Whether a reverse mortgage is right for you is a big 

question. Consider all your options. You may qualify for 

less costly alternatives. The following organizations have 

more information:

Reverse Mortgage Education Project

AARP Foundation

601 E Street, NW

Washington, DC 20049

www.aarp.org

1-800-209-8085

U. S. Department of Housing and Urban Development 

(HUD)

451 7th Street, SW

Washington, DC 20410

www.hud.gov

1-800-CALL-FHA (1-800-225-5342)
The FTC works to prevent fraudulent, deceptive and 

unfair business practices in the marketplace and to provide 

information to help consumers spot, stop and avoid them. 

To file a complaint or get free information on consumer 

issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP 

(1-877-382-4357); TTY: 1-866-653-4261. 

Watch the video, How to File a Complaint, at 

consumer.ftc.gov/media to learn more. The FTC 

enters consumer complaints into the Consumer Sentinel 

Network, a secure online database and investigative tool 

used by hundreds of civil and criminal law enforcement 

agencies in the U.S. and abroad.
Federal Trade Commission

ftc.gov

March 2011