They have significant home equity but limited cash flow
How Does a Reverse Mortgage Work?
Many senior homeowners find themselves in situation like one or some of the below:
If you or a loved one can relate, it pays to learn the basics about reverse mortgage loans. Unlike traditional mortgages that require monthly payments, a reverse mortgage allows homeowners aged 62 or older to borrow against their home equity while maintaining ownership of their property—without making monthly mortgage payments. Instead, the homeowner needs to cover the property charges they already had to pay for, such as taxes, insurance and maintenance.
But that’s just the beginning. Let’s dive into the core mechanics of reverse mortgage loans to understand how they really work.
Understanding Reverse Mortgage Basics
What is a reverse mortgage and how does it differ from traditional mortgages?
A reverse mortgage turns the traditional mortgage concept on its head. While a traditional mortgage requires you to make monthly payments to the lender, a reverse mortgage pays you while using your home as collateral. The major difference lies in how the loan balance changes over time. With a reverse mortgage, your loan balance increases as interest and fees are added each month.
The two main types of reverse mortgages:
Home Equity Conversion Mortgage (HECM) Loans:
HECMs are by far the most common type of reverse mortgage loan, so much so that when most people say “reverse mortgage,” they really mean HECM. In fact, HECMs account for 90% of reverse mortgage loans today.
They’ve attained this level of popularity due to a number of consumer protections they offer, most notably that they’re federally insured by the FHA. HECMs are paid off by the sale of the home, not the home owner or their heirs.
But what happens if the HECM loan balance exceeds the value of the home at the time of sale? FHA mortgage insurance pays the difference.
Proprietary Reverse Mortgages:
These are offered by private lenders and can differ between lenders and loan products. The main proprietary reverse mortgage I offer is the Jumbo Reverse Mortgage Loan. HECMs have a loan limit of $1,209,750 (as of 2025).
For a lot of folks who have been blessed with high equity accumulation over the years, a HECM could leave money on the table. Jumbo reverse mortgages offer larger loan amounts, increased flexibility in disbursement options, and may even have fewer eligibility restrictions.
Eligibility and Qualifications
Age and ownership requirements:
The most fundamental requirement is age—you must be at least 62 years old to qualify for a Home Equity Conversion Mortgage (HECM). If you’re married and your spouse is under 62, they can still be protected as a non-borrowing spouse, allowing them to stay in the home if you were to pass away.
Property eligibility:
First, the house needs to be the primary resilience. Secondly, the home needs to meet specific criteria to qualify, which typically includes:
- Single-family homes or 2-4 unit properties (you must live in one unit)
- HUD-approved condominiums
- Manufactured homes (built after June 15, 1976)
- Individual condos meeting FHA requirements
Some property types can be easier to secure a HECM with than others. But with more than 30 years of experience in the industry, I’ve learned a lot of ways to help make it happen for those homeowners.
Financial qualifications:
Like a traditional mortgage, lenders will also assess your finances for a reverse mortgage. That said, reverse mortgages are generally much easier to qualify for. In addition to delinquent federal debt, lenders are most concerned with the borrower’s ability to pay for taxes and insurance. Sometimes they may require a Life Expectancy Set-Aside (LESA), which reserves part of your loan proceeds to cover future property taxes and insurance. This requirement helps ensure you can maintain your obligations throughout the loan term, as failing to pay for those property expenses can cause the loan to become due.
While I always recommend having an experienced financial advisor working with you at all times, all the time, HECMs require that you get counseling with a HUD-approved counselor before you can apply, ensuring you have a neutral party to ask questions to.
The Application and Approval Process
I walk my clients through the entire process, from paperwork to final approval, every step of the way.
The entire process typically takes between a month and a month and a half, but for folks with pressing needs, I can try to speed things up a little if possible.
Required documentation:
To start your application, you’ll need to gather some important documents:
- Valid photo identification and proof of age
- Social Security card or Medicare card
- Recent tax bills and insurance policies
- Income verification documents
- Property deed and any existing mortgage statements
Mandatory counseling session:
As discussed earlier, HECMs require a session with a HUD-approved counselor. This typically takes about 90 minutes and can be done in person or over the phone. During this session, you’ll discuss:
- How reverse mortgages work
- Your financial situation and needs
- Alternative options
- Responsibilities as a borrower
Timeline and steps to closing:
Once you’ve completed counseling and submitted your application, here’s what happens:
- Initial processing and appraisal ordering
- Underwriting review of your application
- Final approval and preparation of closing documents
- Closing with a title agent or attorney
After closing, you’ll have a three-day “right of rescission” period where you can still cancel the loan without penalty if you get cold feet. Once this period ends, your funds will be disbursed according to your chosen payment plan.
Remember, when you work with me and Movement Mortgage, I’ll be there to guide you through each step and will answer any question that comes up along the way.
Payment Options and Fund Distribution
Now we get to the fun part—your choices in how you receive your loan payout, and you do have a tremendous amount of flexibility to tailor distribution to your unique goals.
Lump sum:
With a lump sum payment, you’ll receive up to 60% of your approved amount in the first year.
Monthly payments:
You can choose either term payments (fixed period) or tenure payments (as long as you live in the home).
Line of credit option:
Personally, I love the line of credit option. The unused portion has guaranteed growth over time, and the line of credit can’t be frozen or reduced, even if your home value decreases or your lender goes under.
Check out a video of mine about how the line of credit can be applied to retirement planning.* It’s made for financial advisors so it can get a little technical, but I think you’ll see why I like this option so much!
Combining payment methods:
What makes reverse mortgages truly flexible is that we can help you mix and match payment options. For example, you might want to:
- Take an initial amount to pay off existing debt
- Set up monthly payments for regular expenses
- Keep a line of credit for future needs
Conclusion
Reverse mortgage loans are a powerful financial tool that can improve retirement life for people in a wide-variety of financial situations. That said though, they’re not really well known and there are a lot of myths and misconceptions about them today.Â
But as you can see, they aren’t that difficult to understand once you break them down to the basics. If you want to find more information for yourself, my website has a lot more to offer, including info about HECMs, top benefits for homeowners, FAQs, and how reverses can be used to purchase a new home.
Educating people about their options is my favorite part of my job, so if you’d like to pick my brain, please feel free to reach out today.
Learn more about how a reverse mortgage could work for you
Please fill out the form below and I’ll be in touch as soon as possible.
*consult a tax/financial professional
