Reverse Mortgage Basics

What is a reverse mortgage?

A reverse mortgage is a loan that lets homeowners aged 62 and older convert part of their home equity into cash — without selling the home or making monthly mortgage payments. The lender pays you, instead of the other way around.

The most common type is the HECM (Home Equity Conversion Mortgage, pronounced "heck-um"). HECMs are offered through private lenders like Reverse Freedom Mortgage and are insured by the federal government through the Federal Housing Administration (FHA), a division of HUD.

While you remain in the home, no repayment is required. The loan balance grows over time as interest accrues — but you keep the title to your home, and you are never required to make a monthly payment as long as you live there and meet the loan terms.

How it works: the simple version

Think of your home's value in two parts: the equity you own and any remaining debt. With a traditional mortgage, you make monthly payments that reduce debt and build equity until you own the home outright.

A reverse mortgage works in the opposite direction. The lender pays you — as a lump sum, a line of credit, or monthly payments — and that loan balance gradually increases over time. You still own the home. You still live in the home. But instead of paying the bank, the bank is paying you.

When the loan ends — because you sell the home, move out permanently, or pass away — the home is typically sold to repay the loan. Any equity remaining after repayment goes to you or your heirs.

How retirement changes your monthly budget

This table shows what a typical Utah household budget looks like before retirement, during retirement without a reverse mortgage, and with one.

Who qualifies for a reverse mortgage?

To be eligible for a HECM reverse mortgage, you need to meet a few straightforward requirements:

How you can receive the funds

One of the things many Utah homeowners find surprising is the flexibility in how they receive the money. You have several options:

Lump sum

Receive all your available proceeds at once at closing. This is the only option with a fixed interest rate, and it works well for paying off an existing mortgage or handling a large one-time expense.

Line of credit

The most flexible option. Draw on the funds as you need them, and the unused portion actually grows over time — at the same rate as your loan interest. Many financial planners recommend this as a retirement strategy tool.

Monthly payments

Receive a fixed amount each month, either for a set term or for as long as you live in the home (called "tenure" payments). This can effectively replace a lost income stream in retirement.

Combination

Many borrowers choose a combination — for example, a small lump sum to pay off their existing mortgage and a line of credit for future needs.

What you need to know about costs

A reverse mortgage is not free — there are upfront costs, and the loan balance grows over time. Understanding these is important.

Upfront costs typically include an FHA mortgage insurance premium (MIP), origination fee, appraisal, title insurance, and closing costs. Many of these can be financed into the loan so you do not need to pay them out of pocket.

Ongoing costs include an annual MIP (0.5% of the loan balance), interest that accrues monthly, and your ongoing property charges (taxes, insurance, maintenance).

The trade-off is clear: you give up some equity over time, and in return you gain cash flow, eliminate your mortgage payment, and stay in your home. Whether that trade-off makes sense depends on your situation — which is why we always offer a free, no-obligation consultation before any decisions are made.

Protecting your heirs and your home

HECM reverse mortgages are non-recourse loans. That means you will never owe more than your home is worth when the loan becomes due. If the home sells for less than the loan balance, FHA insurance covers the difference. Your heirs are never responsible for that shortfall.

When the loan does become due, your heirs have options. They can sell the home and use the proceeds to repay the loan, keeping any remaining equity. They can also refinance the reverse mortgage into a traditional mortgage to keep the home. Or, if the loan balance exceeds the home's value, they can simply walk away with no personal liability.