Your home is more than where you live—it’s where life has happened. It’s been your gathering place, your comfort zone, and the backdrop for years of memories with family and friends.
But it’s also something else: one of your largest financial assets.
Over time, you’ve built equity—through consistent payments and rising home values. For many homeowners age 62 and over, that equity represents their single largest source of wealth.
That raises an important question in retirement: should you use your home equity—and if so, how?
When used thoughtfully, home equity can provide flexibility, support cash flow, and strengthen an overall financial plan.
This guide takes an in-depth look at reverse mortgages—home loans designed to help older homeowners and homebuyers put their home equity to work.
What Is a Reverse Mortgage?
A reverse mortgage allows older-adult homeowners to convert a portion of their home equity into cash—without required monthly principal and interest mortgage payments—while they continue to live in and own their home. (Borrowers must still maintain the home and pay critical property charges like taxes and insurance.)
Repayment is typically deferred until the home is sold, no longer used as a primary residence, or the last borrower passes away.
There are two primary types:
1) Home Equity Conversion Mortgage (HECM)
• For borrowers age 62+
• The most widely used reverse mortgage
• Insured by the Federal Housing Administration (FHA)
• Best suited for:
– Homes up to FHA lending limits ($1,249,125 for 2026)
– FHA-approved condos
– Borrowers seeking strong protections and optimal line-of-credit features
2) Proprietary Reverse Mortgages (Jumbo/Private)
• For borrowers as young as 55 in select states
• Growing in popularity
• Backed by private investors (not FHA-insured)
• Best suited for:
– Higher-value homes (often $1.4M+)
– Non-FHA-approved condos
– Borrowers looking to maximize proceeds at closing
This guide focuses primarily on HECMs, with a separate section on proprietary options.
How Does a Reverse Mortgage Work?
With a traditional mortgage, you make payments to the lender and your balance declines.
With a HECM, the process is reversed—the lender pays you, allowing you to access your home equity.
The key benefit is flexibility:
There are no required monthly principal and interest payments.
However, you must continue to:
• Pay critical property charges like taxes and HOA dues (if applicable)
• Maintain homeowners insurance
• Keep the home in good condition
If payments are deferred, interest and fees accrue over time, increasing the loan balance—similar to how an unsubsidized student loan grows when payments are paused while the student attends school.
Importantly, payments are optional—not prohibited. Some borrowers choose to make voluntary payments to manage balance growth.
Options For Accessing Your Funds
How you receive funds depends on the loan structure:
Fixed-Rate HECM
• One-time lump sum at closing
• Fixed interest rate for the life of the loan
Adjustable-Rate HECM (ARM)
• Greater flexibility
• Options include:
– Tenure — Fixed monthly payouts for as long as you live in the home as your primary residence
– Term — Fixed monthly payouts for a set period
– Line of Credit — Draw as needed; no preset draw period end date
– Modified Tenure — Line of credit + monthly payouts for as long as loan terms are met
– Modified Term — Line of credit + fixed payouts for specific number of months
• Interest rate adjusts based on a market index
How Much Money Can I Get from My Home?
If you are approved for a HECM loan, your available loan proceeds (principal limit) depend on:
• Age of youngest borrower (or non-borrowing spouse)
• Home value (up to the HECM limit)
• Interest rates
In general, older borrowers and higher home values result in greater access to funds. While access may be limited in the first year, ARMs (unlike fixed HECMs) allow ongoing access to any remaining principal limit after the first year. A key advantage: any unused line of credit grows over time, increasing future borrowing capacity. This flexibility is a primary reason most borrowers choose ARMs.
The HECM Line of Credit (LOC)
The line of credit is the most popular option—and for good reason:
It’s secure
• Cannot be reduced, frozen, or canceled if loan terms are met
It’s flexible
• Draw, repay, and reuse funds as needed—no pre-set draw end date.
It grows
• Unused funds increase over time at a compounding rate, increasing borrowing capacity
Establishing a line early can create meaningful future flexibility.
Consider this example: A borrower establishes a HECM on a $500,000 home with a $200,000 line of credit. For simplicity, assume no funds are drawn and the variable rate remains steady at 6.75%. Under these assumptions, the available line of credit could grow to approximately $287,000 in 5 years, $412,000 in 10 years, and $849,000 in 20 years— potentially outpacing projected home-value growth over the same period.
HECM LOC vs. HELOC: What’s the Difference?
While a traditional Home Equity Line of Credit (HELOC)**** may offer lower upfront costs, a HECM line of credit includes several features that can be especially valuable for homeowners age 62+.
Here’s a side-by-side comparison:
Minimum Age Requirement
• HECM: At least one borrower must be 62+
• HELOC: No minimum age
Do Unused Funds Accrue Interest?
• HECM: No
• HELOC: No
Required Monthly Payments
• HECM: No required monthly principal or interest mortgage payments
• HELOC: Yes
– Typically interest-only payments during the draw period (e.g., first 10 years)
– Followed by principal + interest payments during repayment period (e.g., next 20 years)
Draw Period Limitations
• HECM: No set draw period as long as loan terms are met
• HELOC: Yes—commonly 5–10 years
Qualification (Age 62+)
• HECM: Generally more flexible qualification standards
• HELOC: Typically more restrictive underwriting
Can the Line Be Frozen or Reduced?
• HECM: No, if loan terms are met
• HELOC: Yes, based on market conditions or financial changes
Does Available Credit Grow Over Time?
• HECM: Yes—unused funds grow at a compounding rate
• HELOC: No
This combination of stability, flexibility, and growth potential helps make the HECM line of credit a unique financial tool for many retirees.
Eligibility Requirements
Like any loan, with a HECM reverse mortgage there are qualifications and requirements that the prospective borrower must meet in order to qualify for the loan. Below are the key requirements.
Financial Assessment
Borrowers must demonstrate the ability to pay property charges (taxes, insurance, HOA).
There is no minimum credit score, but credit history and residual income are reviewed.
Property Requirements
Eligible property types include:
• Single-family homes
• 2–4 unit properties (one unit owner-occupied)
• FHA-approved condos
• Certain manufactured and modular homes
Age
At least one borrower must be 62+
Equity
Typically 50%+ equity required
Counseling
HUD-approved counseling is required prior to closing
HECM Pros and Cons
Pros
• Funds can be used for nearly any purpose
• Can refinance or pay off a traditional mortgage, eliminating required monthly principal and interest mortgage payments (borrowers must still pay critical property charges such as taxes and insurance)
• Repayment can typically be deferred until the last borrower sells the home, permanently moves out, or passes away
• Improves cash flow flexibility
• Funds are generally not taxable*
• Does not typically impact Social Security or Medicare benefits*
• Borrowers retain ownership and control of the home
• Most upfront costs can be financed into the loan
Cons
• Existing mortgages generally must be paid off, as HECMs are required to be in first-lien position
• The unpaid reverse mortgage loan balance generally grows over time because interest and fees accrue on the outstanding balance. However, borrowers can choose to make voluntary payments at any time—and in any amount—to help manage balance growth
• Because you are drawing down on your home equity, there may be less equity remaining for heirs. That said, strategically leveraging home equity may help preserve other productive assets, potentially supporting broader long-term financial and legacy goals
• Could impact eligibility for certain needs-based programs, such as Medicaid*
• Upfront costs are often higher than some traditional loan alternatives
Loan Maturity, Repayment & Heirs
A common question is: What happens to the home?
A reverse mortgage typically becomes due and payable when:
• The last borrower passes away
• The home is sold
• The borrower permanently moves out of the home
• Loan obligations are no longer met (for example, failure to maintain homeowners insurance)
Importantly, all reverse mortgages are non-recourse loans. This means the home serves as collateral for the debt, and neither you nor your heirs can ever owe more than the home’s value when the loan becomes due and the home is sold. With a HECM, this protection is backed by FHA insurance.
If Heirs Do NOT Want the Home
• Sell the home and keep remaining equity
• Or complete a deed-in-lieu if underwater
Because HECMs are non-recourse loans, your heirs are not responsible for any shortfall.
If Heirs DO Want the Home
• Pay/refinance the lesser of the loan balance or 95% of appraised home value (if loan exceeds value)
Non-Borrowing Spouse Protections
In certain cases, eligible non-borrowing spouses may remain in the home and defer repayment after the borrower’s death or incapacitation, provided loan obligations continue to be met.
Plan Ahead
Reverse mortgages impact long-term financial and estate planning.
Discussing options in advance helps ensure:
• Heirs understand their choices
• Plans align with long-term goals
• Decisions are made with clarity and confidence
Common Uses for Reverse Mortgages
Refinancing Existing Mortgage
HECM loan proceeds can be used at closing to refinance (pay off) your payment-required traditional mortgage into a payment-optional reverse mortgage. Plus, you can use any remaining HECM loan proceeds as you wish.
Home Renovations & Repairs
From widening doorways to updating a bathroom, home modifications can improve safety, comfort, and long-term livability.
Funding these improvements can be challenging on a fixed income. A reverse mortgage may provide a way to access the funds needed—helping you stay in the home you love while adapting it for the years ahead.
Long-Term Care & Medical Expenses
Healthcare and long-term care costs can add up quickly, putting pressure on savings and long-term plans. Having a strategy in place is essential.
HECM proceeds may help you:
• Pay long-term care insurance premiums (before care is needed)
• Cover deposits for assisted living or nursing care
• Fund in-home care during recovery or ongoing needs
• Manage unexpected medical expenses
Support Family or Give During Your Lifetime
Accessing home equity can create opportunities to support loved ones or give while you’re able to see the impact.
Whether it’s helping with education costs, assisting family members, or making charitable contributions, a reverse mortgage can provide added flexibility—without disrupting your broader retirement plan.
Divorce in Retirement (Gray Divorce)
Dividing assets later in life can be complex, especially when the home is a significant part of the equation.
In some cases, a reverse mortgage may allow one spouse to remain in the home while providing the other with their share of equity. This approach can help both parties maintain financial stability while transitioning to separate living arrangements.
Debt Consolidation
Carrying debt into retirement—such as credit cards or auto loans—can strain monthly cash flow.
A reverse mortgage may allow you to refinance existing debts, potentially reducing monthly obligations and improving overall financial flexibility.
A Buffer Against Market Downturns
A reverse mortgage line of credit can serve as a supplemental source of funds during market volatility.
By drawing from home equity instead of selling investments during a downturn, you may help preserve your portfolio and give it time to recover. (Consult a financial advisor to determine if this strategy fits your plan.)
Build an Emergency Fund
Unexpected expenses are a reality in retirement. Establishing a HECM line of credit can provide a readily available financial cushion.
One key advantage: unused funds in the line of credit grow over time, increasing your borrowing capacity and providing greater flexibility when you need it most.
Enhance Your Quality of Life
Retirement should be one of life’s most rewarding chapters.
A reverse mortgage can provide additional financial flexibility—whether that means traveling, upgrading your lifestyle, helping family, or simply reducing financial stress day to day.
What Are the Costs of a HECM?
Lenders are required to provide prospective HECM borrowers with a Good Faith Estimate (GFE) outlining all loan costs. One unique aspect of a HECM is that almost all of these costs can be financed into the loan—meaning they typically do not need to be paid upfront and out of pocket.
It’s important to note: if you choose to finance these costs, your available net loan proceeds will be reduced by the amount of those costs.
HECM Counseling Fee
The counseling fee is one of the few costs typically paid out of pocket and is paid directly to the counseling agency. It is usually around $150, though it may vary.
This required session is conducted by a U.S. Department of Housing and Urban Development (HUD)-approved independent third party. The goal is to ensure you fully understand the loan and to help determine whether it’s a good fit for your situation. Counseling can be completed in person or over the phone.
Property Appraisal
The appraisal is another cost generally paid out of pocket and averages around $500, though it can vary.
The appraisal determines your home’s current market value. Along with your age and the expected interest rate, this value is a key factor in determining how much loan proceeds you may qualify for.
Origination Fee
The origination fee can be financed into the loan. The cost is the greater of:
• $2,500, or
• 2% of the first $200,000 of the home’s value, plus 1% of the amount above $200,000
• Capped at a maximum of $6,000
This fee covers the lender’s administrative costs, including processing and underwriting the loan.
Initial Mortgage Insurance Premium (MIP)
The initial MIP can also be financed into the loan. The cost is the lesser of:
• 2% of the home’s appraised value, or
• 2% of the FHA HECM lending limit (currently $1,249,125)
For example, if your home is valued at $423,000, the initial MIP would be $8,460.
Both the initial and ongoing MIP are paid into the FHA’s Mutual Mortgage Insurance Fund. This fund provides a key protection (the non-recourse feature): it ensures that neither you nor your heirs will ever owe more than the home’s value when the loan is repaid. Even if the home sells for less than the loan balance, FHA insurance covers the difference.
If the home sells for more than the loan balance, any remaining equity belongs to you or your heirs.
Other Closing Costs & Third-Party Fees
As with any mortgage, there are additional third-party costs involved in closing the loan, such as:
• Title search
• Surveys
• Recording fees
These costs are typically financeable into the loan. Your lender will provide an itemized estimate in advance, including which services you may shop for.
Annual Mortgage Insurance Premium (MIP)
In addition to the upfront MIP, there is an annual MIP of 0.5% of the outstanding loan balance. This is added to the loan balance over time rather than paid monthly out of pocket.
The actual cost will vary depending on how much of your available loan proceeds you use and whether you make voluntary payments. Notably, unused funds in a line of credit do not accrue interest or MIP.
Like the initial MIP, this ongoing cost supports the non-recourse protection of the loan.
Interest
Interest accrues on the outstanding loan balance and can be financed into the loan. Because no required payments are being made, the balance typically increases over time.
For example, if a borrower finances $12,000 in closing costs and does not draw additional funds or make voluntary payments, with a 6.0% interest rate and 0.5% MIP, the balance would grow to approximately $12,780 after one year. In this case, the combined annual cost of interest and MIP would be $780.
Servicing Fees (if applicable)
Lenders may charge a monthly servicing fee, though these fees are capped:
• Up to $30/month for fixed or annually adjusting rates
• Up to $35/month for monthly adjusting rates
(Note: Fairway does not currently charge servicing fees on the HECM loans it originates.)
Buying Your Next Home — The HECM for Purchase Option
A HECM for Purchase, often called H4P, allows homebuyers age 62 and older to purchase a new primary residence using a reverse mortgage.
Because you do not yet own the new home, you do not have existing equity in that property. Instead, you establish the required equity through your down payment.
Typically, buyers contribute approximately 45%–70%** of the purchase price from their own funds, with the reverse mortgage financing the remainder. In many cases, proceeds from the sale of a current home are used toward the required down payment.
Once the transaction is complete, the loan works like any other HECM: there are no required monthly principal and interest mortgage payments, as long as loan obligations are met. Borrowers must continue to pay property taxes, homeowners insurance, and maintain the home.
For many borrowers, H4P can feel similar to making an all-cash purchase—but with an important difference: it allows them to keep more of their savings liquid instead of tying up too much wealth in the home.
A Hypothetical Example
Consider Sue, a 73-year-old retiree who is selling her paid-off home and expects to net $300,000. She wants to relocate closer to family and purchase a single-story home better suited for her needs. She finds a home listed at $400,000.
Option 1: Paying All Cash
Sue could use the full $300,000 from the sale of her current home and withdraw an additional $100,000 from her $200,000 in retirement savings to purchase the home outright.
While this eliminates a mortgage payment, it also means:
• Her entire housing equity is tied up in the new home
• Her retirement savings are reduced from $200,000 to $100,000
• Her liquid assets are significantly reduced
That loss of liquidity could limit her financial flexibility and increase the risk of outliving her savings.
Option 2: Traditional Mortgage
Sue could use a portion of her sale proceeds for a down payment and finance the rest with a traditional mortgage.
This allows her to preserve more cash than an all-cash purchase, but it also introduces:
• Required monthly principal and interest payments
• Ongoing pressure on retirement cash flow
• Greater exposure to today’s higher interest rate environment
In retirement, fixed monthly obligations can reduce flexibility and make it harder to absorb unexpected expenses, such as healthcare or long-term care costs.
Option 3: HECM for Purchase
Sue could use around $265,000** from the sale of her home toward the down payment and finance the remainder with an H4P loan.
This approach may allow her to:
• Add to her retirement savings
• Avoid required monthly principal and interest mortgage payments
• Maintain greater cash-flow flexibility
• Purchase a home that better fits her lifestyle
Because repayment is deferred as long as she lives in the home and meets the loan obligations, H4P may help create a more efficient retirement income strategy.
NOTE: Story is for illustration purposes only. The persons depicted herein are fictional and any resemblance to actual persons is a coincidence.
Proprietary Reverse Mortgages: Jumbo and Second-Lien Options
Now that we’ve covered HECMs, it’s important to understand the other major category of reverse mortgage solutions: proprietary reverse mortgages.
Unlike HECMs, proprietary reverse mortgages are not FHA-insured. They are private reverse mortgage products backed by investors. Because they are not limited by FHA lending rules, they may offer additional flexibility for certain homeowners—especially those with higher-value homes, non-FHA-approved condos, or existing low-rate first mortgages they do not want to refinance.
Two common proprietary solutions include:
• Second-lien reverse mortgages
• Jumbo reverse mortgages
HomeSafe Second: A Reverse Mortgage Without Paying Off the First Mortgage
As mentioned earlier, a HECM must be in first-lien position. That means any existing mortgage must typically be paid off at closing.
For some homeowners, that creates a challenge—especially if they have a low-rate first mortgage they want to keep.
That is where HomeSafe Second*** may be an option.
HomeSafe Second is a proprietary second-lien reverse mortgage that allows eligible homeowners to access home equity while keeping their existing first mortgage in place.
Why HomeSafe Second May Be Attractive
HomeSafe Second may be a good fit for homeowners who want to:
• Keep an existing low-rate first mortgage
• Access home equity without refinancing the first lien
• Improve cash flow or build liquidity
• Fund home improvements or aging-in-place renovations
• Prepare for long-term care or medical expenses
• Support family, consolidate debt, or strengthen emergency reserves
Key Features
• Available to homeowners as young as 55 in many states
• No required new monthly mortgage payment on the second-lien reverse mortgage
• No FHA mortgage insurance premium
• Existing first mortgage can remain in place
• Borrowers retain homeownership
• Funds may be used for a variety of retirement needs
• Most closing costs may be rolled into the loan
Borrowers must continue to pay their existing first mortgage, property taxes, homeowners insurance, HOA dues if applicable, and maintain the home.
For homeowners with strong equity but a favorable first mortgage, HomeSafe Second can offer a meaningful way to access liquidity without disturbing their existing loan structure.
Jumbo Reverse Mortgage Options
For homeowners with higher-value properties, a HECM may not always provide sufficient proceeds due to FHA lending limits.
While home values may exceed $1,249,125, the HECM calculation is capped at the FHA lending limit (currently $1,249,125). In other words, even if your home is worth $2 million, only $1,249,125 is used to determine available loan proceeds.
That’s where Fairway’s Signature Reverse Suite may offer an alternative.
Signature Reverse products are proprietary reverse mortgage solutions designed for eligible homeowners age 55+ in many states who are seeking alternatives to a traditional HECM—particularly those who want access to higher lending limits. Unlike HECMs, these programs may allow the full property value (up to $4 million) to be considered.
These first-lien jumbo reverse mortgages may be especially attractive for homeowners who:
• Own higher-value homes
• Want to access more equity than a HECM allows
• Have a non-FHA-approved condo
• Prefer no FHA mortgage insurance premium
• Are younger than the HECM minimum age of 62
Signature Reverse products are just some of the proprietary reverse mortgage options available through Fairway—contact Fairway for the full lineup and details. No proprietary reverse products are affiliated with the FHA-insured HECM program. Availability varies by state and all products are subject underwriting approval.
Signature Reverse Line of Credit
The Signature Select Reverse Line of Credit is designed as a jumbo alternative to a HECM line of credit—particularly for homeowners with higher-value properties.
Key Features
• Loan amounts up to $4 million
• Flexible line-of-credit access / Variable rate
• 1.5% annual growth on unused funds (first seven years)
• No required monthly mortgage payments (must pay critical property charges)
• No mortgage insurance premium
• Non-recourse protection
• Eligibility starting at age 55 in many states
• Condo-friendly options available
This option may be a strong fit for borrowers seeking flexible access to home equity with higher borrowing potential than a HECM line of credit may provide.
Signature Fixed-Rate Reverse Mortgages
Signature fixed-rate options are designed for borrowers who want lump-sum access, predictable terms, and greater proceeds than a HECM fixed-rate loan may offer.
Available Programs
• Signature Advantage — Fixed-rate, one-time lump sum payout. Best for fee sensitive borrowers
• Signature Peak — Fixed-rate, one-time lump sum payout. Best for borrowers seeking maximum proceeds at closing or for home purchase transactions
• Signature Preserve — Fixed-rate, one-time lump sum payout. Best for borrowers who want to preserve more of their equity for heirs
Key Benefits
• Loan amounts up to $4 million
• Fixed-rate certainty
• No required monthly mortgage payments (must pay critical property charges like taxes)
• No mortgage insurance premium
• Non-recourse protection
• Eligibility starting at age 55 in many states
• Condo-friendly options available
These solutions may be particularly useful for homeowners with substantial equity who want to access a larger portion of their home’s value, purchase higher-priced homes, or structure equity use around long-term financial and legacy goals.
Summary
Reverse mortgages are not one-size-fits-all.
For some homeowners, a HECM may be the best fit because it offers FHA insurance, strong borrower protections, and flexible line-of-credit features.
For others, a HECM for Purchase may help them buy a home that better supports their retirement lifestyle while preserving more of their savings.
For homeowners with higher-value properties, non-FHA-approved condos, or an existing low-rate first mortgage, proprietary options such as HomeSafe Second or Signature Reverse may provide additional flexibility.
And for others, a different home loan product — or no home loan product at all — may be the right answer.
The key is selecting the right solution for the right situation. That’s why, at Fairway, we take a best-fit, best-product approach, offering both traditional and reverse mortgage solutions to help match homeowners with the option that best aligns with their goals and overall financial picture.
When used thoughtfully, home equity can become more than a number on a balance sheet. It can help support cash flow, preserve assets, fund future needs, and create greater flexibility throughout retirement.
Contact the Reverse Planner Team today to learn more.
Let’s Start a Conversation!
If you’d like to learn more about reverse mortgage loans and how one may help with your unique needs, those of a loved one or someone you advise, connect with me today.
*This content does not constitute tax advice or financial advice. Please consult a tax advisor or financial advisor regarding your specific situation.
**The required down payment on your new home is determined on a number of factors, including your age (or eligible non-borrowing spouse’s age, if applicable); current interest rates; and the lesser of the home’s appraised value or purchase price.
***Product not available in all states. Subject to underwriting approval. Available to borrowers as young as 55 in select states only. Higher minimum age requirements may apply. Please ask your loan originator for more details. The state of MA has a maximum loan amount/lending limit of $2,000,000. The Signature reverse mortgage is a proprietary product of Longbridge Financial and is not affiliated with the Home Equity Conversion Mortgage (HECM) program. The HomeSafe reverse mortgage is a proprietary product of Finance of America Reverse LLC .
****This is an educational example of one HELOC. Requirements, payment, and other terms may vary between lenders.
