Quick answer
The main advantage of a HECM reverse mortgage is cash from your home with no monthly loan payment, for as long as you live there and keep up taxes, insurance and repairs. The main drawback is a balance that compounds: $120,000 taken at closing on a $450,000 home grows to about $292,010 in 10 years at an example 7.24% plus the 0.5% annual insurance premium, and passes the home’s value in year 16 if prices stay flat. Upfront costs of $15,000 and the shrinking inheritance are the other big costs.
Key facts
2%
Upfront mortgage insurance (share of the maximum claim amount)
HUD Mortgagee Letter 2017-12 · Oct 2, 2017
Pros and cons at a glance
The reverse mortgage guide covers the rules — who qualifies, the $1,249,125 limit, how payouts work. This post weighs the trade-offs with numbers, using one example: a $450,000 home owned by a borrower who is at least 62.
| Pros | Cons |
|---|---|
| No monthly principal and interest payment | The balance grows every month, with interest and mortgage insurance compounding |
| Flexible payout: lump sum, monthly payments, a line of credit or a mix | Upfront costs of about $15,000 here — 3.3% of the value — before third-party closing costs |
| You can stay in the home as long as you meet the loan terms | You must keep paying property taxes, insurance and upkeep, or the loan can come due |
| Non-recourse: you or your heirs never owe more than the home’s value | Less equity to leave to heirs, to move with or to borrow against later |
| FHA mortgage insurance guarantees you receive the loan advances you expect | Counseling is required before you go ahead |
| Can replace an existing mortgage payment | Leaving the home for more than 12 months for health reasons can make the loan due |
The rest of this post puts numbers on the two biggest rows: how fast the balance grows, and what that leaves.
Three ways the balance can grow
How you draw the money matters more than anything else you control. Each scenario below starts with the same $15,000 of financed upfront costs — the 2% initial premium ($9,000) and the maximum origination fee for this value ($6,000) — and accrues interest at an example 7.24% plus 0.5% a year of mortgage insurance, 7.74% in all. The rate equals today’s 30-year fixed average for illustration only; HECM rates are set differently, and the next section shows what a point either way does.
| How you draw | Total drawn | Year 5 | Year 10 | Year 15 | Year 20 |
|---|---|---|---|---|---|
| Lump sum: $120,000 at closing to pay off an old mortgage | $120,000 | $198,548 | $292,010 | $429,468 | $631,630 |
| $1,000 a month for 15 years | $180,000 | $95,042 | $212,762 | $385,896 | $567,548 |
| Standby line: nothing until $40,000 in year 8 | $40,000 | $22,061 | $82,540 | $121,394 | $178,537 |
Why the lump sum grows fastest
| Amount | |
|---|---|
| Financed upfront costs | $15,000 |
| Paid out at closing | $120,000 |
| Starting balance | $135,000 |
| Yearly growth at 7.74%, compounded monthly | about $10,828 in year one |
| Balance after 10 years | $292,010 |
| Balance after 20 years | $631,630 |
A lump sum starts compounding on the whole amount at once. Monthly payments draw more in total — $180,000 — yet the balance after 20 years is $64,083 lower than the lump sum’s, because each payment compounds for less time. A line kept on standby costs the least: only the upfront costs grow until you need the money. How much you can draw in each form depends on your age, rates and the home’s value — the guide explains the limits.
How much equity is left
Equity is what remains for you to move with, or for your heirs. Here is the lump-sum scenario with home values flat and with values rising at 2.4% a year, the latest 12-month change in FHFA’s house price index (an assumption, not a forecast):
| Loan balance | Equity if values stay flat | Home value at 2.4% a year | Equity at that growth | |
|---|---|---|---|---|
| Year 5 | $198,548 | $251,452 | $506,655 | $308,107 |
| Year 10 | $292,010 | $157,990 | $570,443 | $278,432 |
| Year 15 | $429,468 | $20,532 | $642,261 | $212,794 |
| Year 20 | $631,630 | −$181,630 | $723,122 | $91,492 |
With flat prices the balance passes the home’s value in year 16; with prices rising at 2.4% a year it does so in year 23. A negative figure doesn’t mean anyone pays the difference — that is what the FHA insurance is for — but it does mean there is nothing left to inherit.
How much the rate matters
The upfront costs are fixed once you close. The rate keeps working for as long as the loan lasts. On the same $120,000 lump sum:
| Example rate | Year 10 | Year 15 |
|---|---|---|
| 6.24% | $264,380 | $369,979 |
| 7.24% (example used above) | $292,010 | $429,468 |
| 8.24% | $322,501 | $498,460 |
One percentage point higher adds about $68,992 to the 15-year balance — about 5 times the $15,000 of upfront costs. Compare offers on rate and margin, not only on fees. HUD notes that fixed-rate HECMs pay out only as a single lump sum; every other payout plan has an adjustable rate.
What happens to your heirs
When the last borrower dies or moves out for good, the loan becomes due. Heirs get a due-and-payable notice and have 30 days to buy the home, sell it or turn it over to the lender; the CFPB says the time may be extended up to 6 months to sell or arrange a loan.
Take the lump-sum scenario after 20 years with flat prices: the balance is $631,630 on a $450,000 home.
- To keep the home, the CFPB says heirs must repay the full balance — $631,630 — usually with a new mortgage or savings.
- To sell, they can settle the loan by selling for at least 95% of the appraised value — $427,500 here — even though the balance is $181,630 higher than the value. FHA insurance absorbs the shortfall.
- To walk away, they can hand the home to the lender. Either way, nothing is owed from the rest of the estate.
Who it suits — and who it doesn’t
A reverse mortgage tends to fit when:
- You plan to stay in the home for many years and want to keep it.
- You have a mortgage payment you would like to eliminate, or income that doesn’t cover rising costs.
- Leaving the home’s full value to heirs is not a priority, or they understand the trade.
- You can comfortably pay taxes, insurance and upkeep for the long term.
It tends to fit badly when you may move within a few years (the upfront costs then buy little), when a younger partner isn’t on the loan, or when the property tax and insurance bills are already a strain.
Alternatives: a HELOC, downsizing and others
The same $120,000 can come from other places, each with its own trade-off:
| Alternative | What it costs you | The catch |
|---|---|---|
| HELOC at an example 8% (prime 7% plus 1 point) | $800 a month interest-only for 10 years, then $1,004 | Requires income to qualify; payments rise when repayment starts; the line can be frozen |
| Downsizing to a $300,000 home | No new debt; frees about $150,000 before selling and moving costs | You move; transaction costs; a smaller home |
| Property tax relief for older owners | Lower tax bills where your state offers it, as in Colorado | Rules and income limits vary by state |
| Selling and renting | Frees all the equity | Rent rises over time; you give up the home |
The HELOC guide explains how lines are priced and repaid, and the risks of borrowing against your home apply to every option here. A HELOC payment calculator shows the payments for your own numbers.
Before you apply: counseling
Talk to a HUD-approved counselor
Required for every HECM; call HUD’s referral line at 800-569-4287. Bring your spouse and, ideally, your heirs.
Review the alternatives with the counselor
Counseling covers eligibility, costs and other options; it doesn’t commit you to a loan.
Compare at least two lenders
Rate, margin, origination fee (capped at $6,000) and third-party costs.
Choose how to draw
Lump sum, monthly payments, line of credit or a mix, using the scenarios above as a guide.
Budget for the costs that stay
Taxes, insurance, HOA dues and repairs for as long as you live there.
Frequently asked questions
What is the biggest disadvantage of a reverse mortgage?
The balance grows every month. In our example $120,000 taken at closing grows to about $292,010 after 10 years and $631,630 after 20, at an example 7.24% plus 0.5% annual MIP, leaving less equity for you and your heirs.
What is the main advantage of a reverse mortgage?
No monthly loan payment. You can turn equity into cash — as a lump sum, monthly payments or a line of credit — and stay in the home as long as you keep up taxes, insurance and repairs.
Can a reverse mortgage leave my heirs in debt?
No. A HECM is non-recourse: if the balance exceeds the home’s value, heirs can settle by selling for at least 95% of the appraised value, and FHA insurance covers the rest. To keep the home, they must repay the full balance.
How much does a reverse mortgage cost upfront?
On a $450,000 home, the 2% initial premium is $9,000 and the maximum origination fee is $6,000, so $15,000 before third-party closing costs. They can be financed into the loan rather than paid in cash, which means they compound with the balance.
Is a HELOC better than a reverse mortgage?
It costs less upfront and leaves more equity, but it needs income to qualify and requires payments — $800 a month interest-only on $120,000 at an example 8% in our example. A reverse mortgage needs no payment but grows the debt.
Do I need counseling for a reverse mortgage?
Yes. Every HECM borrower must complete counseling with a HUD-approved counselor before applying. HUD’s referral line is 800-569-4287.
Sources
- HUD Mortgagee Letter 2025-22 — 2026 HECM maximum claim amount (2026 limit)
- HUD Mortgagee Letter 2017-12 — HECM initial mortgage insurance premium (share of maximum claim amount); HECM annual mortgage insurance premium (share of balance) (Oct 2, 2017)
- 24 CFR 206.31 — HECM origination fee: lenders may always charge up to; HECM origination fee cap; HECM origination fee: share of the first $200,000 of the maximum claim amount (Oct 7, 2026)
- CFPB — Heirs can settle a HECM larger than the home’s value by selling for at least this share of the appraised value; Heirs have this long after a HECM due-and-payable notice to buy, sell or turn over the home; Heirs’ time to sell a home or get their own loan after a HECM due-and-payable notice may be extended up to (Aug 28, 2026)
- FHFA House Price Index — US house prices, 12-month change (FHFA HPI) (August 2026)
- Freddie Mac Primary Mortgage Market Survey — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- Federal Reserve H.15 — Bank prime loan rate (Oct 28, 2026)
- CFPB — Example HELOC draw period (CFPB); HELOC repayment period, often up to (CFPB) (Aug 28, 2026)
- HUD — HUD housing counseling referral line (Oct 28, 2026)
- CFPB: Reverse mortgages
- HUD: FHA reverse mortgage for seniors (HECM)
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.