A reverse mortgage, also called a Home Equity Conversion Mortgage (HECM), is a mortgage loan only designed for homeowners ages 62 and older. It lets you borrow money based on the security of your home like a regular mortgage. Unlike a regular mortgage, where you regularly pay the lender, in a reverse mortgage the lender makes regular payments to you.

You should consider alternatives before committing to a HECM including Home Equity Line of Credit (HELOC), refinancing and downsizing. HECMs require a mortgage free home to close on the HECM. The amount is capped at the lesser of appraised value or $1,089,300 in 2023.

Like a regular mortgage you retain the title and own the home, while the lender has a mortgage lien to secure their interest. The same is true in a reverse mortgage. Because you are not selling the home there aren’t capital gains taxes, and because the money you get is a drawdown on a loan it is not taxable income.

With a reverse mortgage the amount you owe goes up with each payment, unpaid interest, and fees for mortgage insurance, closing costs, origination, and loan servicing. The loan is repaid when you no longer live in the house. You or your heirs must repay the loan usually by selling the house.

There are other types of HECMs, but most require FHA mortgage insurance to guarantee you receive expected loan advances and that you’ll never owe more on the loan than the house sells for. In addition to being 62, you must meet specific borrower requirements, property requirements, and financial requirements.