For over 20 years, All Reverse Mortgage, Inc. has helped thousands of homeowners achieve financial freedom through federally insured reverse mortgages.

As a HUD-approved lender that specializes exclusively in reverse mortgages, we bring unmatched expertise to this space.  That’s why this 2025 guide doesn’t just cover the basics — it gives you the complete picture: how reverse mortgages work, what they cost, your payout options, and what they mean for your heirs.

ARLO™ explains how a reverse mortgage works

What Is a Reverse Mortgage?

A reverse mortgage is a special type of loan for homeowners age 62 or older.  It allows you to convert part of your home’s value into tax-free cash without making monthly mortgage payments.

You remain the homeowner and decide how to receive funds:

  • Lump sum at closing
  • Monthly payments (for a set term or for life)
  • Line of credit you draw on when needed
  • Or a combination of these options

The loan is repaid when you sell your home, permanently move out, or pass away.

Expert Insight from Michael Branson, CEO: “The more money you borrow at the beginning of the loan, the faster the interest will accrue on the larger balance.  If you are looking to pass on the largest asset to your heirs, you can significantly reduce the amount of interest that accrues by borrowing smaller amounts and as late in the loan cycle as is comfortable or necessary.”

Reverse Mortgage vs. Traditional Loan: Key Differences Explained by ARLO™

Reverse Mortgage vs. Traditional Mortgages and Home Equity Loans

When considering borrowing against your home, most people envision a traditional mortgage or a home equity line of credit (HELOC).  A reverse mortgage works very differently — it was designed specifically for homeowners age 62 or older.

Here’s how they compare:

FeatureReverse Mortgage (HECM)Traditional MortgageHome Equity Loan / HELOC
Age Requirement62+18+18+
Monthly PaymentsNone requiredRequiredRequired
Funds AccessLump sum, monthly payments, line of credit, or combinationLump sum at closingLump sum (loan) or revolving credit line (HELOC)
RepaymentDue when you sell, move, or pass awayPaid monthly over term (15–30 years)Paid monthly over term
Equity ImpactLoan balance grows as interest accrues (unless repaid voluntarily)Equity builds as balance decreasesEquity builds as balance decreases
Borrower ProtectionsFHA-insured HECM is non-recourse (you never owe more than the home’s value)No federal protections beyond standard lending lawsNo federal protections beyond standard lending laws

Key takeaway: With a reverse mortgage, you stay in your home and can choose whether or not to make payments.  Unlike a HELOC or cash-out refinance, repayment isn’t required until you move out, sell, or pass away.  That flexibility is why many older homeowners use a reverse mortgage to supplement retirement income while preserving monthly cash flow.

Expert Insight from Michael Branson, CEO: “If your goal is flexibility, the reverse mortgage line of credit is unmatched — it grows over time and gives you access to more funds in the future, unlike a HELOC that can be frozen or reduced by the bank.”


How Much You Can Get From a Reverse Mortgage

The amount of money you can get from a reverse mortgage usually ranges from 40% to 60% of your home’s appraised value.  The older you are, the more you can receive because loan amounts are based on your age and current interest rates.

Several factors determine the loan amount:

  • The age of the youngest borrower
  • The value of the home or the 2025 lending limit (whichever is less)
  • The current interest rates

Other factors that affect the loan amount include:

  • Costs to obtain the loan (these are subtracted from the available loan amount)
  • Existing mortgages and liens (these must be paid off)

Any remaining money after these deductions belongs to you.

You can use our reverse mortgage calculator to find out how much you can receive from a reverse mortgage.


How Age Affects Your Principal Limit

Your Principal Limit — the maximum amount you can borrow from a reverse mortgage — is based on the age of the youngest borrower (or eligible non-borrowing spouse). The reason? HUD uses life expectancy to estimate how long interest may accrue on the loan.

  • Younger borrowers (closer to 62): Receive smaller loan amounts because they’re expected to live longer, allowing more time for interest to compound.
  • Older borrowers (those closer to 82+): Qualify for larger loan amounts upfront, as the loan term is statistically shorter.

Example:

  • A 62-year-old with a $500,000 home might access ~$200,000.
  • An 82-year-old with the same home and rates could access ~$300,000+.

Key Point: The program ensures that regardless of age, you can stay in your home for life without required mortgage payments — as long as you pay property taxes, insurance, and maintain the home.

Pro Tip: If you are within six months of your next birthday at the time of closing, HUD automatically uses your next age to calculate your Principal Limit.  This can slightly increase the funds available to you.  Every situation is unique, so it’s best to run the numbers before deciding when to apply.


How You Can Receive the Funds

One of the most flexible aspects of a reverse mortgage is the option to choose how you receive your money.

  • Lump Sum: One-time payout at closing (fixed-rate option).
  • Line of Credit: Access funds only when you need them — and any unused portion grows over time.
  • Term Payments: Equal monthly payments for a set period (e.g., 10 years).
  • Tenure Payments: Monthly payments for life, as long as you live in the home.
  • Combination: Mix methods to suit your goals.

Scenario Example:
A couple, both age 74, owns a $500,000 home. They:

  • Take $100,000 upfront for home improvements.
  • Set up $1,000/month payments for 4 years to cover living costs until Social Security increases.
  • Leave $125,000 in a line of credit for emergencies, which will grow every year that it remains untouched.

Want to see how each payout option works? Explore real examples and discover which reverse mortgage payment plan best suits your needs. Learn more about Term, Ten-Year, and Tenure payments →

Expert Insight from Michael Branson, CEO:  “A reverse mortgage can be a smart way to bridge the gap before claiming Social Security.  By using monthly term payments or a line of credit to cover expenses, some homeowners delay filing for Social Security until a later age — allowing them to lock in a higher lifetime benefit.  This strategy can increase long-term retirement income while still giving you the flexibility to use your home equity on your own terms.  Your line of credit grows on the portion of the line you do not use, so you can begin allowing the line to grow, giving you greater borrowing power later if you need it.  Be sure to check with your financial advisor to see what is right for you regarding your Social Security and/or pension plans.”

line of credit growth chart

The Line of Credit Growth Advantage

This feature sets the HECM apart from other loans. With a reverse mortgage line of credit, unused funds grow at the same rate as your loan’s interest plus mortgage insurance premiums.

  • Starting credit line: $200,000
  • After 10 years: $350,000 available
  • After 20 years: $660,000–$820,000 available (depending on rates)

Important: This isn’t “investment growth.” It’s an expanding borrowing limit that ensures your available funds keep pace with time — providing a built-in inflation hedge.

Expert Insight from Michael Branson, CEO: “Even if your reverse mortgage line of credit eventually grows larger than your home’s value, you can still withdraw every dollar tax-free and remain in your home for life.  HUD guarantees full access to your line of credit — even if your lender goes out of business — through built-in FHA mortgage insurance protections.”

ARLO shopping around for the best interest rates and closing costs.

Finding the Best Interest Rates and Closing Costs

Not all reverse mortgages are created equal.  Interest rates, margins, and fees can differ significantly between lenders.

  • A lender with slightly lower upfront fees may appear attractive, but if their margin is 0.50% higher, it can result in tens of thousands of dollars more in interest over time.
  • Conversely, a loan with a slightly higher margin may give you a stronger line of credit growth rate if that’s your goal.

What to Compare:

  • Interest rate + margin
  • Closing costs (origination, appraisal, third-party fees)
  • Servicing fees (rare today, but some lenders still charge them)

Smart Strategy: Choose based on your goals — whether it’s maximizing proceeds upfront, preserving equity, or building the strongest line of credit growth.

Expert Insight from Michael Branson, CEO: “Watch your financing terms.  Don’t accept a larger margin that can end up costing you thousands of dollars in accrued interest over the years and leave you with less money available at closing, to save a little money on one fee.  Look at all the terms offered and compare lenders.”

ARLO explaining costs vs benefit

Reverse Mortgage Costs vs. Benefits in 2025

A reverse mortgage can be a powerful retirement tool — but like any financial decision, it comes with trade-offs.  Here’s the complete picture:

Key Benefits

  • No Required Monthly Mortgage Payments – You free up monthly cash flow.
  • Stay in Your Home for Life – As long as you live there as your primary residence and keep up with taxes, insurance, and maintenance.
  • Flexible Payout Options – Choose lump sum, monthly income, line of credit, or a mix.
  • FHA-Insured Protections – HECM reverse mortgages are non-recourse, meaning you never owe more than your home’s value.
  • Financial Flexibility – Use proceeds for home improvements, medical expenses, paying off debt, or simply boosting retirement income.
  • Line of Credit Growth – Unlike a HELOC, your unused credit line grows over time.

Pro Tip: Before deciding on a reverse mortgage, think carefully about your long-term aging-in-place plans.  Do you live in a two-story home?  Is it fully accessible as you get older?  In some cases, downsizing — or “right-sizing” — with a reverse mortgage for home purchase may be a smarter way to secure both comfort and financial flexibility for the years ahead.


Main Costs & Considerations

  • Upfront Fees – Higher than some traditional loans due to FHA mortgage insurance premiums (MIP).
  • Ongoing MIP Charges – Added to the loan balance over time.
  • Equity Reduction – Your loan balance grows as interest accrues, which may reduce the inheritance left to heirs.
  • Property Obligations Remain – You must continue to pay property taxes, homeowners insurance, and upkeep costs.
  • Primary Residence Requirement – You can’t use a HECM reverse mortgage on a vacation home or investment property.

Pro Tip: If preserving home equity for your heirs is your top priority, consider making optional payments or taking smaller draws to retain a larger portion of your home’s equity.

FeatureProCon
Home Equity AccessTap into your home’s value without selling or moving.Equity decreases over time as loan balance grows.
Monthly PaymentsNo mortgage payments required.Must still pay taxes, insurance, and maintenance.
Stay in Your HomeLive in your home for life.Must remain your primary residence.
Payout FlexibilityLump sum, monthly income, line of credit, or combination.Larger upfront draws may reduce future access.
Government-InsuredFHA insurance guarantees borrower protections.Requires upfront and ongoing MIP.
Heir OptionsHeirs can sell the home or refinance at 95% of market value.Inheritance may be reduced if balance is high.
Non-RecourseYou or heirs never owe more than the home’s value.Heirs must act quickly to settle the loan after death.

Frequently Asked Questions

Q.

Who owns the home with a reverse mortgage?

You remain the legal owner of your home when you take out a reverse mortgage.  The lender does not take ownership.  A reverse mortgage is simply a loan secured by your property, much like a traditional mortgage.  You keep the title in your name, and the lender only has a lien against the home.

(Tip: Think of it just like a regular mortgage—the bank has a lien, not the deed.)

Q.

How much money can I get from a reverse mortgage?

The amount of money you can get from a reverse mortgage depends on three key factors:

  1. Age of the Youngest Borrower – The older you are, the more money you can access.

  2. Current Interest Rates – Lower rates allow you to borrow a higher percentage.

  3. Home’s Appraised Value – The higher your home’s value, the more funds may be available.

Together, these factors determine your Principal Limit Factor—the percentage of your home’s value you can borrow.  To see how much you may qualify for, try our free reverse mortgage calculator at https://reverse.mortgage/calculator.

Q.

How is the loan amount determined?

The loan amount for a reverse mortgage is based on guidelines set by HUD using what’s called the Principal Limit Factor (PLF).  The PLF takes into account:

  1. Age of the Youngest Borrower (or Eligible Spouse) – Older borrowers qualify for a higher percentage.

  2. Current Interest Rates – Lower rates allow you to borrow more.

  3. Home Value (up to FHA’s lending limit) – Your home’s appraised value also plays a role.

Because interest rates can vary by lender, the amount you qualify for may differ depending on which lender you choose.  Using a reverse mortgage calculator can give you a personalized estimate based on your specific age, home value, and current rates.

Q.

Do I need good credit to qualify?

You do not need perfect credit to get a reverse mortgage.  Unlike traditional loans, reverse mortgages are more focused on your home equity and ability to keep up with property charges like taxes and insurance.

If your credit history shows past issues, HUD allows a Life Expectancy Set-Aside (LESA).  This means a portion of the loan is set aside to pay your property taxes and homeowners’ insurance.  As long as there’s enough room in your loan to cover the LESA, you may still qualify.

However, in some cases the LESA requirement can reduce the available funds to the point where it may not fully pay off your existing mortgage, which could prevent you from moving forward.

Q.

Is an appraisal required?

Yes.  An appraisal is required for every reverse mortgage.  Most reverse mortgages are part of the FHA-insured HECM (Home Equity Conversion Mortgage) program, which requires an FHA-approved appraisal of your home.

The appraisal confirms the home’s value and ensures it meets HUD’s minimum property standards.  If you’d like to review those standards, you can visit HUD’s official site: HUD Minimum Property Standards.

Q.

Can you make payments on a reverse mortgage?

Yes.  While one of the biggest benefits of a reverse mortgage is that you don’t have to make monthly payments, you can choose to make voluntary payments at any time.

Making payments can help reduce your loan balance or increase the available funds in your line of credit.  There are no prepayment penalties, so you can pay off part—or even all—of the loan whenever you wish.

Q.

What is the 95% rule on a reverse mortgage?

The 95% rule applies to heirs after a reverse mortgage comes due. If the loan balance is higher than the home’s current value, heirs can choose to keep the property by paying only 95% of its current appraised value—not the full loan balance.

This HUD protection ensures that heirs will never owe more than the home is worth, even if the loan balance has grown beyond the property’s value.

Q.

What are the downsides of a reverse mortgage?

Reverse mortgages can be a valuable tool, but there are a few downsides to consider before deciding if it’s right for you:

  1. Higher Upfront Costs – Most reverse mortgages are FHA-insured HECM loans, which include a one-time Mortgage Insurance Premium of 2% of the home’s value (up to HUD’s current lending limit of $1,209,750 as of September 2025).  While this insurance provides important protections, it adds to the initial costs.

  2. Growing Loan Balance – Because no monthly payments are required, interest and fees are added to the balance each month.  This means your loan balance will increase over time, which reduces the equity left in your home.

A reverse mortgage works best as a long-term solution.  If you’re only planning to stay in your home a short time, the upfront costs may outweigh the benefits.

Q.

Can I lose my home with a reverse mortgage?

Yes.  Just like with any mortgage, you could lose your home if you don’t meet the loan requirements.  With a reverse mortgage, you must:

  • Live in the home as your primary residence

  • Stay current on property taxes and homeowners insurance

  • Keep the home in reasonable repair

If these obligations aren’t met, the lender can call the loan “due and payable.”  At that point, the balance must be repaid—either by refinancing, selling the home, or paying it off with other funds.  If the loan is not repaid, foreclosure is possible.

The good news is that as long as you follow the occupancy, tax, insurance, and maintenance requirements, you remain the owner of your home and can stay there for life.

Q.

What if I outlive my home’s value?

One of the biggest benefits of a reverse mortgage is that it’s a non-recourse loan.  This means you can never owe more than your home is worth, no matter how long you live there or how much your loan balance grows.

For example, if your reverse mortgage balance grows to $500,000 but your home is only worth $450,000 when you leave, neither you nor your heirs are responsible for the $50,000 difference.  The FHA Mortgage Insurance Fund covers that shortfall.

In other words, you can stay in your home for life without worrying about outliving its value, and your estate is protected from owing more than the home’s worth.

Q.

How does a reverse mortgage get repaid?

A reverse mortgage is usually repaid when the borrower permanently leaves the home, but repayment can happen at any time since there are no prepayment penalties.  Common ways to repay include:

  • Selling the Home – The loan is paid off from the sale proceeds.

  • Refinancing – You can refinance into another mortgage product if it makes sense.

  • Using Other Funds – Borrowers or heirs may use savings, life insurance, or other assets to pay off the balance.

Most often, repayment happens through the sale of the home after the borrower passes away or moves out.  Any remaining equity after the loan is repaid belongs to the homeowner or their heirs.

Q.

How long do you have to pay back a reverse mortgage?

A reverse mortgage does not need to be repaid until a maturity event occurs.  This typically means:

  • The last surviving borrower (or eligible non-borrowing spouse) permanently leaves the home, either by moving out or passing away.

  • The borrower fails to meet the loan requirements, such as paying property taxes, maintaining homeowners’ insurance, or keeping the home in good repair.

Once the loan becomes due and payable, the servicer will contact the borrower or heirs.  Common repayment options include selling the home, refinancing, or paying off the balance with other funds.

If heirs plan to sell the property, servicers generally allow extensions in 90-day increments, up to one year, as long as good-faith efforts to sell are being made.  If there is no cooperation or repayment plan, foreclosure may proceed, with timelines varying by state law.


Key Takeaways: How Reverse Mortgages Work in 2025

  • Lets you convert home equity into tax-free loan proceeds without monthly mortgage payments.
  • The most common program is the Home Equity Conversion Mortgage (HECM), which the FHA insures.
  • You must be 62 or older and live in the home as your primary residence.
  • Loan amount depends on your age, home value, and current interest rates.
  • Repayment is only due when you sell, move out permanently, or pass away.
  • Non-recourse rules protect your heirs — they’ll never owe more than the home’s value.
  • You keep ownership of your home and can sell or pay off the loan at any time, with no prepayment penalties.

Expert Insight from Michael Branson, CEO: The biggest advantage of a reverse mortgage is flexibility. You’re not locked into monthly payments, but you can still make them if preserving equity is your goal.

Need Personalized Answers?  All Reverse Mortgage, Inc. (ARLO™) is here to help.  Access our reverse mortgage calculator to estimate your lending limit, or call us Toll-Free at (800) 565-1722.  We’re here to help you make informed decisions, allowing you to continue enjoying your retirement.