Reverse Mortgages: 7 Things Lenders Don't Want You to Misunderstand

1. You still own your home

The biggest myth: the lender takes title. They don't. You retain ownership, and your name stays on the deed. The lender holds a lien — same as a normal mortgage — and gets paid back when the loan becomes due.

2. The loan becomes due eventually

A reverse mortgage doesn't have monthly payments, but it isn't free. The loan must be repaid when:

You sell the home
You move out for 12+ months (e.g., to long-term care)
You pass away (heirs typically have 6 months to repay or refinance)
You fail to pay property tax, insurance, or HOA

Failing to keep up #4 is the most common reason seniors lose homes with reverse mortgages.

3. You can never owe more than the home is worth

HECMs are non-recourse. If the loan balance exceeds the home value at payoff time, the lender (via FHA insurance) eats the difference. Your heirs are never on the hook for the gap.

This is why upfront mortgage insurance premium (MIP) is 2% of the home value — it funds the insurance pool.

4. The upfront fees are substantial

Typical HECM closing costs include:

Origination fee — 2% of first $200K + 1% above (max $6,000)
Upfront MIP — 2% of home value (mandatory)
Standard closing costs — title insurance, appraisal, recording (~$2-4K)
Servicing fees built into the rate

On a $500K home, expect $15-20K of fees coming out of your proceeds. Our Reverse Mortgage calculator shows this clearly.

5. You don't get the home's full value

The Principal Limit Factor (PLF) — what % of the home value you can borrow — depends on:

Borrower's age (older = higher PLF)
Expected interest rate (lower = higher PLF)
HECM lending limit (2025: $1,209,750)

A 65-year-old with a 6% expected rate typically gets ~50% of home value. A 75-year-old gets ~58%. An 85-year-old gets ~67%.

6. There are 3+ payment options

You can receive proceeds as:

Lump sum — all at once (fixed-rate only)
Tenure payment — monthly for as long as you stay in the home
Term payment — monthly for a set period
Line of credit — draw as needed, unused portion grows

The line of credit is the most flexible and the credit line actually grows over time at the loan's interest rate. This is a unique feature most homeowners don't know about.

7. Counseling is mandatory

HUD requires every prospective borrower to complete counseling with a HUD-approved counselor before closing. The counselor (free or low-cost) walks through:

All alternatives (HELOC, downsizing, family loan, life settlement)
Long-term implications
Whether the loan is genuinely the right choice

Take this counseling seriously. The counselor's job is NOT to talk you into the loan — they often steer people away from it.

Honest alternatives to consider first

Before a HECM, evaluate:

HELOC — cheaper closing costs, but requires income to qualify and has minimum payments
Downsize — sell the home, buy a smaller one, bank the difference (often the right answer)
Sale-leaseback — sell to an investor who rents it back to you
Family loan — kids fronting cash in exchange for inheritance offset (formalize with a real promissory note)

When a reverse mortgage genuinely makes sense

A HECM is the right tool when:

You have substantial home equity and limited other assets
You plan to stay in the home for 5+ years (so closing costs amortize)
You can comfortably keep paying tax, insurance, and HOA
You don't need to leave the home to heirs
You've done the HUD counseling and the counselor concurred

In that situation, it's a perfectly legitimate financial tool. Outside that situation, downsizing or a HELOC usually wins.