A reverse mortgage is a loan for homeowners typically age 62 or older. It allows you to convert some of the equity in your home into cash without having to sell the home or move out of it.
A major benefit of a reverse mortgage is that it does not require that you make monthly payments. Your loan is repaid when you either sell or move out of your home or when you pass away. In the event that the primary borrower passes away, repayment would be left to a spouse or the estate.
To find the best reverse mortgage, check out the table below, and keep reading to learn more about how these loans work.
Table of contents:
Types of reverse mortgages
There are three main types of reverse mortgages. These include:
- Home equity conversion mortgage (HECMs): These loans are insured by the Federal Housing Administration (FHA) and are the most common type of reverse mortgage. HECMs have a loan limit of $765,600.
- Proprietary reverse mortgages: These loans are not insured by the federal government and are offered by private lenders for those with high home values.
- Single-purpose reverse mortgages: These loans are not insured by the federal government and can be offered by state and local governments or non-profit organizations. They are to be used only for the purpose specified by the lender (for example, a home renovation).
Best reverse mortgage companies
When it comes to reverse mortgages, lenders offer different deals and provide different terms. Some companies will charge more in interest and fees on your loan. Some companies will be willing to lend you more. Some will offer different types of reverse mortgages or more flexibility.
By shopping around and comparing the costs, you can ensure that you get the best rates and terms available.
| Company | LendEDU Rating | Market Share* | Loans Offered |
| Reverse Mortgage Funding | 5 / 5 | 10.12% | – Equity Elite Reserve Mortgage – Adjustable-Rate HECM – Fixed-Rate HECM – Reverse Mortgage for Purchase |
| American Advisors Group | 4.98 / 5 | 32.22% | – AAG Advantage Jumbo – Adjustable-Rate HECM – Fixed-Rate HECM – Reverse Mortgage for Purchase |
| One Reverse Mortgage | 4.84 / 5 | Not provided | – Home Equity Loan Optimizer (HELO) – Adjustable-Rate HECM – Fixed-Rate HECM – HECM for Purchase |
| Finance of America Reverse | 4.35 / 5 | 10.12% | – HomeSafe – HECM – Reverse Mortgage for Purchase |
| HomeBridge Financial Services | 3.09 / 5 | Not provided | Not provided |
*Source: https://www.statista.com/statistics/630171/leading-reverse-mortgage-lenders-usa-by-market-share/
How we rated the best reverse mortgage companies
To find the best reverse mortgage lenders, our editorial team analyzed each provider based on Trustpilot rating, Better Business Bureau rating, state availability, fund time, loan amounts offered, number of branches, number of state licenses, number of regulatory actions, number of mortgage loan originators, and year founded.
All data points were averaged together to determine an overall score. Learn more about our ratings and methodology here.
Frequently asked questions
Am I eligible for a reverse mortgage?
It is important to note that a requirement of the HECM program is that anyone interested in a loan must first meet with an HECM counselor to discuss eligibility, financial implications, and repayment. To find a counselor near you, check out the U.S. Department of Housing and Urban Development’s tool. You can also call (800) 569-4287 toll-free.
Borrower requirements include:
- Be 62 years or older
- Own the property outright or have paid down a considerable amount
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Be able to make on-time payments for property taxes, insurance, and other fees
Property requirements include:
- Single-family home or two- to four-unit home with one unit occupied by the borrower
- HUD-approved condominium project
- Individual condominium units that meet FHA Single Unit Approved requirements
- Manufactured home that meets FHA requirements
When it comes to proprietary and single-purpose reverse mortgages, the eligibility requirements are generally pretty similar to those of the HECM program, but your income, assets, monthly living expenses, and credit history may be weighed differently. Individual requirements will be determined by your lender.
How can I receive the funds from my reverse mortgage?
When taking out a reverse mortgage, you’ll be able to choose from five different payout options. These include:
- Lump sum: This option pays out the full loan amount in one payment. This is only available with a fixed-rate loan.
- Term payments: This option offers fixed monthly payments for a specific amount of time.
- Tenure plan: This option offers fixed monthly payments for as long as the borrower lives in the home.
- Line of credit: With this option, the borrower is able to draw from the loan at any time until the line is used up. Interest is only charged on the portion of the loan that is used.
- Monthly payments plus a line of credit: This option offers fixed monthly payments for as long as the borrower lives in the home. Additionally, if the borrower needs more money, they can draw from a line of credit.
The way in which you decide to receive your funds is up to you. Think about what you want to use the money for and decide whether your financial needs require cash now or at a steady pace.
What are the costs of taking out a reverse mortgage?
Just like other loans, a reverse mortgage does come with added costs, such as interest and fees. If you don’t want to pay these upfront fees out of pocket, you can use your loan proceeds, but doing so will affect the amount you ultimately receive.
For example, if you were to receive $500,000 through your loan and had costs that totaled $10,000 to take out the loan, your available balance would now be $490,000 instead of the original $500,000. Make sure you take this into account when you are deciding on how you would like to receive your funds.
Since costs and fees may vary for proprietary and single-purpose reverse mortgages, this section will focus on the most common loan, the HECM.
HECM fees include:
- Mortgage insurance premium: This is a fee charged to you by your mortgage lender. The lender uses this fee to protect themselves against the risk that you, the borrower, won’t pay them back. This fee is charged at 2% of the loan amount upfront, and 0.5% of the outstanding loan balance annually for the remainder of the loan.
- Origination fee: This fee will be charged to you by your lender for processing your loan. For the first $200,000 of the loan, you will be charged the greater of $2,500 or 2%, plus 1% of the amount over $200,000. These fees are capped at $6,000.
- Servicing fee: This fee is charged by your lender to compensate them for the services they provide you throughout the life of your loan. If you choose an annually adjusting interest rate or fixed rate, your servicing fee will be no more than $30. If you choose an interest rate that adjusts monthly, your servicing fee will be no more than $35.
- Third-party charges: Closing costs may be charged from third parties. These charges can include an appraisal, title search and insurance, inspections, mortgage taxes, credit checks, and other fees.
- Interest: This is the rate charged on your outstanding balance each month. The longer you keep your loan outstanding, the higher the overall cost of your loan will be. Variable rates can change over the life of the loan depending on market conditions. Fixed rates will be the same throughout the life of the loan. Interest is not tax deductible until the loan is paid off partially or in full.
Just because you have taken out a reverse mortgage doesn’t mean you no longer have to pay for some standard monthly expenses on your home. Your lender will likely require that you continue to pay property taxes, utilities, maintenance, and homeowners insurance.
If this may be an issue, discuss this with your lender before taking out the loan. You may be able to set aside funds from the loan upfront that can be used for these expenses.
How do you repay a reverse mortgage?
One of the appealing parts of a reverse mortgage is the fact that you will not be charged monthly payments during the duration of the loan. Instead, the loan is to be repaid once the primary borrower moves out, sells the home, or passes away.
What a borrower, or heir in the event that the borrower passes away, will be repaying is the original amount of the loan plus interest, premium mortgage insurance, and any additional fees. Lenders under the HECM program cannot require a borrower or heir to owe more than the home is worth regardless of the final loan amount.
Here are your options for repaying a reverse mortgage:
- Sell the home and repay the mortgage in full: Borrowers or their heirs can pay off the outstanding balance of a reverse mortgage by selling the property. The money received in the sale will then be used to repay the loan. If the home sells for more than the mortgage, the borrower or their heirs will keep the remaining amount.
- Sell the home for 95% of the appraised value and pay off what you can: Borrowers or their heirs who are underwater on their house can sell the house for 95% of its appraised value and repay the loan with this amount. The FHA prohibits lenders from going after the remaining unpaid balance on the loan. Proprietary and single-purpose reverse mortgages may be able to go after the difference. Be sure to check with your lender.
- Provide the lender a deed: Borrowers or their heirs may provide the deed of a house to the lender instead of dealing with foreclosure if the house is underwater. This action will have no impact on the credit score of the heir, but will hurt the credit score of a borrower.
- An heir can take out a new mortgage: In the event that a borrower dies, an heir can decide to keep the house by paying off the reverse mortgage with a new mortgage. If the balance on the reverse mortgage is higher than the value of the home, the heir can buy the house for 95% of its appraised value. The heir will have six months to pay off the reverse mortgage. During this time, interest on the loan will continue to accrue.
- Refinance your mortgage: If a borrower decides to move out of the house, but would like to keep it as a rental property, they will need to pay off the loan. If the borrower can’t repay the loan with their own money, they can refinance the loan into a forward mortgage.
How does a reverse mortgage work when I have a spouse?
It is recommended that borrowers include their spouses as co-borrowers on reverse mortgage applications. By doing this, repayment does not begin until both individuals have moved out or passed away. Additionally, if the primary borrower passes away, their spouse will still have the right to funds from the loan since they were on the application to begin with.
If your spouse is not listed as a co-borrower on a reverse mortgage application, then repayment may begin as soon as the borrower moves out or passes away. This approach can also cause the remaining spouse to be removed from the home.
However, for HECMs issued after August 4, 2014, a non-borrowing spouse can stay in the home after the borrower has moved out or passed away if they meet certain criteria, such as:
- They must have been married to the borrower at the time the loan was issued
- They must be named as a spouse in the loan documents
- The borrower, when alive, must certify that they are an eligible non-borrowing spouse annually
If you meet these criteria, then repayment for the reverse mortgage will not be owed until you die or move out of the house.
Are there risks to taking out a reverse mortgage?
While a reverse mortgage can help you pay off everyday or emergency expenses, it can be quite costly. There are higher upfront closing costs and fees with a reverse mortgage than with other types of loans.
You could also end up carrying your full mortgage for many years, while the overall cost of your loan continues to grow. That could erode your equity completely. If you want to leave your home to your family, there might not be any equity left over.
During your reverse mortgage, you’ll still have to pay for all of the costs of your property like home maintenance, property taxes, and homeowners insurance.
Another downside to reverse mortgages is that you are required to sell the home and repay the loan when you move out or if the borrower passes away. If you need to suddenly move out of your home because of health issues or if you pass away suddenly, you or your heirs may have extra work during an already difficult period.