Reverse Mortgages: What Seniors Should Know in 2026

A widow named Marjorie came into my Westport office a few years ago with a manila envelope and a question: did her husband really borrow $180,000 against the house, or was the statement she was looking at a mistake? It was not a mistake. He had taken out a HECM (a federally insured reverse mortgage) five years before he died. The original draw was around $110,000. The rest was interest and mortgage insurance, compounding quietly while he was alive and continuing to compound after the funeral. Marjorie was 71, the home was paid off when they took the loan, and now she had twelve months to either refinance, sell, or pay off the balance before the servicer could foreclose.

That is the call I take most often about reverse mortgages. Not at the beginning of the loan, when the brochures show smiling couples on a porch, but at the end, when the math gets handed to a surviving spouse or to grown children who did not know the loan existed. So when readers ask me whether a reverse mortgage is a good idea, I tell them the honest answer: sometimes yes, often no, and almost never the simple yes the television ads suggest.

What a Reverse Mortgage Actually Is

A reverse mortgage is a loan against your home equity that does not require monthly principal-and-interest payments. Instead of you paying the lender, the lender disburses funds to you, and interest accrues on the growing balance until you sell, move out for more than 12 months, die, or fall behind on property taxes, insurance, or maintenance. At that point, the loan becomes due and payable.

The vast majority of reverse mortgages in the United States are HECMs, or Home Equity Conversion Mortgages, insured by the Federal Housing Administration. HECMs have historically made up roughly 95 percent of the market. That has been shifting: high-value proprietary jumbo reverse mortgages have grown fast, and by dollar volume private-label loans actually edged past HECMs for the first time in early 2026. But for the typical homeowner whose house is worth less than the federal lending limit, the HECM is still the product that matters. HECMs have standardized rules, mandatory HUD counseling, and a non-recourse feature I will come back to, because it is the single most important protection in the product.

There are two other categories. Proprietary reverse mortgages, sometimes called jumbo reverse mortgages, are offered by private lenders such as Finance of America and others for homes valued above the HECM limit. They have fewer federal protections and vary widely by lender. Single-purpose reverse mortgages are rare, offered by some state and local agencies or nonprofits, and the funds can only be used for one approved expense, usually property taxes or specific home repairs. They are the cheapest of the three but the hardest to find.

For 99 out of 100 senior homeowners I talk to, the question is really about HECMs. The rest of this piece will focus there, with notes where the proprietary product differs.

Who Qualifies in 2026

HECM eligibility has not changed dramatically in the last few years, but the lending limit has crept up. For 2025, the FHA single-family loan limit, which caps the home value the HECM formula will recognize, was $1,209,750. For 2026 it rose to $1,249,125 (HUD Mortgagee Letter 2025-22), so that is the most home value the HECM formula will recognize this year. If your home is worth more than the cap, the principal limit is still calculated against the cap, not the full appraised value.

The other rules:

• Age: All borrowers on the title must be 62 or older. A younger spouse can be listed as an Eligible Non-Borrowing Spouse, but with consequences I will detail below.
• Primary residence: The home must be where you live most of the year. Vacation homes and rentals do not qualify. If you move into assisted living or a nursing home for more than 12 consecutive months, the loan becomes due.
• Equity: There is no fixed percentage, but most borrowers either own the home outright or carry a small enough mortgage that the HECM proceeds can pay it off at closing. If your existing mortgage is large, you may not have enough HECM proceeds to clear it, which kills the deal.
• Counseling: You must complete a session with a HUD-approved counselor before you can apply. This typically runs $125 to $200 and is sometimes free for lower-income borrowers. The National Council on Aging maintains a counselor list.
• Financial assessment: Since 2015, lenders must verify you have the income and credit history to keep up with property taxes, homeowners insurance, HOA dues, and basic upkeep. If the assessment shows a risk, the lender can require a Life Expectancy Set-Aside (LESA), a chunk of your proceeds carved off and held back to pay future taxes and insurance.

The financial assessment was added because, before 2015, too many borrowers were losing homes to tax foreclosure after the HECM was already in place. The set-aside protects against that, but it also reduces the cash you walk away with.

The Math, and Why the Math Hurts

This is where most reverse mortgage decisions go sideways. The amount you can borrow is called the principal limit, and it is calculated from three inputs: the age of the youngest borrower, the expected interest rate, and the lesser of your home's appraised value or the HECM cap. The principal limit factor (PLF) is set by HUD and updated periodically. Our free reverse mortgage calculator runs this math on your own numbers (age, home value, current mortgage) and returns the principal limit, available cash, lump sum, line of credit, and monthly-for-life amounts. No name or email required.

Rough numbers at current rates:

• At age 62, the PLF is roughly 32 to 40 percent of home value.
• At 65, around 38 to 45 percent.
• At 75, around 50 to 55 percent.
• At 85, around 60 to 65 percent.

So a 72-year-old with a $500,000 home is not going to get $500,000. They are going to get something like $230,000 to $260,000 of available principal, before fees come out of that.

The fees are not trivial. A typical HECM closing carries:

• An upfront mortgage insurance premium of 2 percent of the home value (capped at the HECM lending limit).
• An origination fee that can run up to $6,000, regulated by a HUD formula.
• Counseling fee, appraisal, title insurance, recording fees, and a servicing fee.
• An annual mortgage insurance premium of 0.5 percent of the outstanding balance, accruing each year.

All in, closing costs commonly land in the $15,000 to $25,000 range on a mid-sized home, and most borrowers roll those costs into the loan rather than paying cash. That means you are borrowing money to pay the fees on the loan, and the interest compounds against the rolled-in amount the same way it compounds against the cash you use. A client at the Westport Senior Center workshop last fall asked me to explain why his $290,000 line of credit had only delivered $264,000 in usable funds. The other $26,000 was the closing-cost iceberg under the waterline.

The second piece of the math problem is compounding. Reverse mortgages are usually adjustable-rate. Interest accrues on the running balance: principal you have drawn, plus prior interest, plus annual insurance premium. Over 15 years at 7 percent, a $200,000 starting balance becomes roughly $550,000 if you draw nothing more. The house has to appreciate faster than the loan grows for there to be equity left at the end. In a flat or slow market, there usually is not.

How You Can Take the Money

HECMs offer five disbursement options:

1. Lump sum — available only on fixed-rate HECMs. You take all available principal at closing. Useful if you are paying off a large existing mortgage, dangerous if you are just sitting on cash.
2. Term payments — equal monthly payments for a fixed number of years.
3. Tenure payments — equal monthly payments for as long as you live in the home as your primary residence.
4. Line of credit — the most flexible option, and the one I usually point clients toward. You draw what you need, when you need it. Critically, the unused portion of the credit line grows over time at the same rate as the loan interest plus the annual insurance premium. That is a quirk worth knowing about: an untouched HECM credit line opened at 65 will have more borrowing capacity at 75.
5. Combinations of the above.

The growing line of credit is the feature that earned reverse mortgages a serious second look from retirement researchers a decade ago. Used as a standby reserve, opened early and drawn only in bad market years to avoid selling investments at a loss, it can meaningfully extend a retirement portfolio. That is a sophisticated use case, and it depends on the homeowner not raiding the line for cars, vacations, or a kitchen remodel along the way.

The Non-Borrowing Spouse Problem

Before 2014, if only one spouse was on the title (often because the other was under 62 and could not be added), the death of the borrowing spouse triggered the loan. The surviving spouse, often a widow in her 60s, would receive a due-and-payable letter and face foreclosure unless she could refinance or come up with the cash. Thousands of these cases worked their way through HUD complaints and federal court before the rules were changed.

The 2014 HUD rule created the Eligible Non-Borrowing Spouse designation. If certain conditions are met (the marriage existed at origination and remained intact, the spouse occupies the property, the spouse establishes legal ownership rights within 90 days of the borrower's death, and the spouse keeps up taxes, insurance, and maintenance), then the loan's due-and-payable status can be deferred for the lifetime of the surviving spouse.

That protection is real and important, but it has sharp edges. The non-borrowing spouse cannot access any additional loan proceeds after the borrower's death. The line of credit stops growing. If the surviving spouse needs to move into assisted living, the deferral ends and the loan comes due. And if the paperwork at origination was sloppy, with the spouse not properly identified as Eligible, the protection may not apply.

I tell every married couple considering a HECM: if both of you are 62 or older, put both names on the loan. Do not let a loan officer talk you into a single-borrower structure to get a higher principal limit. The extra money is not worth the risk to your spouse.

When the Loan Comes Due

A HECM becomes due and payable when the last surviving borrower (or Eligible Non-Borrowing Spouse) dies, sells the home, moves out for more than 12 consecutive months, or fails to keep up property charges. At that point, the heirs have six months to act, with up to two 90-day extensions if they are actively working on a sale or refinance. Total window: about 12 months.

The options are straightforward. Heirs can:

• Pay off the loan balance and keep the home.
• Refinance the balance into a traditional mortgage in their own name.
• Sell the home and keep any equity above the loan balance.
• Sign a deed in lieu of foreclosure and walk away.

This is where the non-recourse feature matters more than anything else in the product. If the loan balance exceeds the home's value at sale, the FHA insurance covers the gap. The lender cannot pursue the heirs or the estate for the difference. The most the heirs ever owe is the lesser of the loan balance or 95 percent of the appraised value if they want to keep the home.

That protection is the reason HECMs exist. It is also the reason the upfront mortgage insurance premium is so expensive. Borrowers are paying for the federal guarantee that protects everyone on the back end.

When a Reverse Mortgage Actually Makes Sense

I have seen reverse mortgages do real good in a few specific situations:

• A house-rich, cash-poor homeowner who wants to age in place and has no heirs who plan to inherit the home. The compounding works against the estate, but if there is no estate to protect, that argument loses weight.
• A retiree who wants to delay claiming Social Security from 62 to 70. A standby HECM line of credit can bridge the gap, and the lifetime Social Security increase often exceeds the reverse mortgage cost.
• A couple with a sizable investment portfolio who want a non-correlated reserve for bad market years. Drawing from the HECM line during a downturn instead of selling stocks at a loss is the sequence-of-returns hedge that academic researchers have written about.
• A homeowner facing a temporary cash crunch (a medical event, a roof, a spouse's care) who has equity but no other liquidity, and who has run the alternatives below first.

The common thread: the borrower understands the cost, has a plan for what the proceeds will accomplish, and has talked to someone other than the loan officer before signing.

When a Reverse Mortgage Causes Harm

The same product, used wrong, becomes the call I get from a surviving spouse or an adult child. The patterns I see most often:

• One spouse plans to move into assisted living within a few years. The HECM accelerates due-and-payable when they go, and the other spouse loses the home.
• The borrower uses the lump sum to invest in something: an annuity, a rental property, a business idea brought by a relative. Compounding 7 percent loan interest against an investment that may or may not return 7 percent is not a strategy; it is a wager.
• The borrower wants to keep the home in the family. Heirs almost always have to sell to repay the balance, because they rarely have the cash and the property has appreciated less than the loan grew.
• The borrower responds to a television ad. Tom Selleck pitched reverse mortgages for American Advisors Group for years; Henry Winkler did it for One Reverse Mortgage. The marketing budget tells you something about the product's margins.

The Consumer Financial Protection Bureau has gone after reverse mortgage marketers for exactly this kind of overselling. In 2016 it fined three companies, American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial, a combined $800,000 for ads claiming borrowers could not lose their homes and would have no monthly payments. In 2024 it fined Nationwide Equities for misrepresenting costs and downplaying that you can still lose the home if you fall behind on taxes or insurance. If a sales pitch leans on phrasing like "government benefit," "you can never lose your home," or "free money," walk away from that lender.

What to Try First

Before signing on a reverse mortgage, run the numbers on your own HECM so you know what you would actually receive, then run the alternatives below:

• A HELOC (home equity line of credit) is usually cheaper if you have income to support monthly interest payments. Closing costs are a fraction of HECM costs.
• A cash-out refinance can work if rates are favorable and you can carry the payment.
• Downsizing. Selling and moving to a smaller property, sometimes a step I have walked clients through in this companion piece, often unlocks more usable cash than a HECM, with no compounding interest.
• State property tax deferral programs. Connecticut, California, Oregon, and other states offer property tax deferral for low-income seniors. Interest is charged, but at rates well below HECM math.
• Medicaid HCBS waivers if income and assets qualify. Many states have home and community-based services that cover care without forcing a home sale.
• A senior-specific home equity loan. A few credit unions and community banks offer modified-term equity loans for retirees on fixed incomes.

For a broader look at the cost of staying put, our piece on the real cost of aging in place walks through the numbers most lenders will not show you.

The Counseling Session Is Worth Taking Seriously

The required HUD counseling, usually about an hour by phone or in person, is genuinely useful, not a formality. A good counselor will run a side-by-side projection of the HECM cost over 10, 15, and 20 years and compare it against a HELOC or a sale. They will ask whether you have heirs who expect to inherit the home, whether your spouse is properly protected, and whether there are alternatives the loan officer skipped.

Go in with questions. Ask the counselor to show you the principal limit calculation, the projected balance at year 10 and year 20, and the impact on your estate. Ask what the loan officer did not mention. Ask what happens if you move into care.

Then, and this is the part most borrowers skip, get a second opinion from a fee-only fiduciary financial planner. Not a commission-based advisor. Not the loan officer. Someone whose only compensation is what you pay them, who has no financial interest in whether you sign the loan.

And then sleep on it for a month. Reverse mortgages are not a 30-day decision. The good ones still work in 30 days. The bad ones reveal themselves when the urgency wears off.

The Honest Summary

A HECM is expensive money. It is not a scam; it is a federally insured product with real protections, and the non-recourse feature is genuinely valuable for the right borrower. But the closing costs are high, the compounding is brutal, and the marketing oversells what the loan can do. For a small group of borrowers in specific circumstances, it is the right tool. For most of the seniors who ask me about it, the alternatives (HELOC, downsizing, tax deferral, a portfolio rebalance) turn out to be cheaper and less complicated once we run the numbers together.

Marjorie, the widow with the manila envelope, eventually sold the house. The sale price covered the loan balance with a small remainder she used as the down payment on a condo five miles from her sister. She is fine. But the year she spent untangling the loan after her husband's death is a year I would not wish on anyone, and it was avoidable. Most of the cost of a reverse mortgage shows up in places the brochure does not picture. If you are considering one, take the counseling, run the alternatives, and bring someone with no commission to the conversation. Then decide.