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

FeatureReverse MortgageTraditional Mortgage
Age Requirement62+18+
Monthly PaymentsOptionalRequired
Loan PurposeAccess home equityHome purchase or refinance
InterestFixed or variableFixed or variable
RepaymentDue upon moving out, sale, or deathOver loan term (e.g., 30 years)
Builds Equity?OptionalNo, builds equity over time
Credit Line Available?YesNo
Key difference: With a reverse mortgage, the balance grows over time as interest accrues, while your equity decreases unless your home’s value rises faster than the loan balance.

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 with a reverse mortgage calculator 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 they don’t touch it.

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.  The reverse mortgage is simply a loan secured against the property, just like a traditional mortgage.  The lender does not take ownership; you keep the title in your name.

(Pro Tip: Think of it as the same as a traditional mortgage — the bank has a lien, not the deed.)

 
Q.

How much money can I get from a reverse mortgage?

Your loan amount (called the Principal Limit) depends on:

  1. Age of the youngest borrower (or eligible non-borrowing spouse).

  2. Current interest rates.

  3. Appraised value of the home (capped at FHA’s 2025 lending limit of $1,209,750).

Older borrowers with lower interest rates and higher-value homes typically qualify for more.

 
Q.

How is the loan amount determined?

HUD sets formulas that lenders must follow.  Your Principal Limit Factor (PLF) is calculated using:

  • Your age (or the age of the youngest borrower/spouse)

  • The current interest rate

  • Your home’s appraised value

Existing mortgages and closing costs are subtracted first.  The remaining amount is available to you.

 
Q.

Do I need good credit to qualify?

Not necessarily.  Unlike traditional mortgages, your credit score isn’t the primary factor.  Lenders mainly check that you’ve been paying your property taxes, homeowners insurance, and HOA dues (if applicable).

If you’ve had credit issues, you can still qualify, but the lender may require a Life Expectancy Set-Aside (LESA) to ensure future property charges are covered.

 
Q.

Is an appraisal required?

Yes.  A reverse mortgage always requires an FHA-approved appraisal.  The appraiser verifies:

If repairs are needed, they may need to be completed before the loan closes.

 
Q.

Do I still make payments on a reverse mortgage?

You do not have to make monthly mortgage payments.  However, you must continue to pay:

  • Property taxes

  • Homeowners insurance

  • Maintenance and HOA dues (if applicable)

You can make optional payments on the loan if you want to slow the balance from rising, but none are required.

 
Q.

Can I sell my home if I have a reverse mortgage?

Yes.  You can sell at any time.  Proceeds from the sale pay off the reverse mortgage balance first, and any leftover equity is yours.  There are no prepayment penalties.

 
Q.

Is there a penalty for paying off a reverse mortgage early?

No.  You can repay the loan in part or in full at any time.  Homeowners often do this if they refinance, downsize, or decide to sell.

 
Q.

How does a reverse mortgage get repaid?

The loan becomes due when you:

  • Sell the home

  • Move out permanently

  • Pass away

At that point, heirs can:

  1. Repay the loan and keep the home.

  2. Sell the home and use the proceeds to pay off the balance.

  3. Walk away if the loan balance exceeds the home’s value — thanks to non-recourse protection.

 
Q.

What if I outlive my home’s value?

You can remain in the home for life, even if your loan balance grows beyond the property value.  Because HECM loans are FHA-insured, you and your heirs will never owe more than the home is worth.

 
Q.

Can I lose my home with a reverse mortgage?

Only if you fail to meet the loan requirements. You must:

  • Live in the home as your primary residence (cannot move out for more than 12 consecutive months).

  • Stay current on property taxes, insurance, and required upkeep.

If these conditions aren’t met, the lender can call the loan due.

 
Q.

What are the disadvantages of a reverse mortgage?

  • Higher upfront costs than some traditional loans (due to FHA insurance).

  • Equity decreases over time if no payments are made.

  • Must remain your primary residence.

  • Heirs may inherit less if the loan balance grows significantly.

 
Q.

Why might a reverse mortgage not be a good idea?

If you plan to move soon, a reverse mortgage may not be a good option.  The upfront costs are designed for long-term homeowners.  If you’re looking for short-term funds or plan to sell in a few years, alternatives like a HELOC, cash-out refinance, or home equity loan may be better.

 
Q.

Is a reverse mortgage a good idea?

It depends on your retirement goals.  A reverse mortgage can be an excellent option if you:

  • Plan to remain in your home for the long term.

  • Want to eliminate monthly mortgage payments.

  • Need extra funds to supplement retirement income, pay for care, or cover unexpected expenses.

But if you expect to relocate in a few years, it may not be the right fit.

 

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.

  • Your heirs are protected by non-recourse rules — 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.