How Does a Reverse Mortgage Work?

A reverse mortgage is a special type of loan designed for older homeowners. It allows you to convert part of the equity in your home into tax-free^† cash — without selling your home or making monthly mortgage payments. You still own and live in your home but must cover taxes, insurance, and maintenance.

Instead of paying the lender each month, the lender pays you through one of several disbursement options, such as a lump sum, line of credit, or monthly payments.

The loan is repaid when the borrower sells the home, moves out permanently, or passes away. Any remaining equity after the loan is settled goes to you or your heirs.

Understanding how mortgages work in reverse starts with a few key concepts:

• You’re borrowing against your home’s equity. The loan amount depends on your age, home value, interest rate, and the type of reverse mortgage you choose.
• You won’t make monthly mortgage payments. This frees up your monthly budget, but you must stay current on property charges like taxes, insurance, and maintenance.
• Interest accumulates over time. Because you’re not making payments, the loan balance grows each month.
• You choose how to receive the funds. Options include a lump sum, monthly disbursements, a growing^‡ line of credit, or a combination of these.^§
• You retain ownership of the home. As long as the home remains your primary residence and you meet loan terms, you stay in control.

There are several types of reverse mortgage loans available, each with different uses and benefits:

Home Equity Conversion Mortgage (HECM)

The HECM is the most common reverse mortgage, insured by the Federal Housing Administration (FHA) and regulated by the Department of Housing and Urban Development (HUD). A HUD-approved counseling session is required before applying, ensuring that borrowers fully understand the loan.

Proprietary reverse mortgages

These are private loans not insured by the federal government. They may allow for larger loan amounts than HECMs and are ideal for homeowners with high-value properties that exceed FHA limits. Most proprietary reverse mortgages also offer expanded age eligibility down to age 55.^*

Jumbo reverse mortgage

A type of proprietary reverse mortgage, jumbo loans are designed for borrowers with homes worth more than the standard FHA lending cap, which increases every year. These loans can provide access to more home equity without the restrictions of HECM guidelines.

Refinance reverse mortgage

If you already have a reverse mortgage, a refinance may allow you to access more equity, add a spouse to the loan, or lock in a better interest rate.

Purchase reverse mortgage

Also known as a HECM for Purchase or reverse purchase financing, this loan allows you to buy a new home using reverse mortgage funds, lets you buy a new home without monthly mortgage payments^|| — ideal for downsizing or relocating.

To qualify for a reverse mortgage, you must meet several basic requirements:

• Be 62 years or older for HECM reverse mortgage or 55 years or older for proprietary loans (varies by state and product)
• Live in the home as your primary residence
• Have a substantial amount of equity in the home
• Have sufficient financial resources to stay current on property taxes, homeowners insurance, and maintenance
• Complete a counseling session with a HUD-approved agency for HECM loans

Eligible properties include single-family homes, HUD-approved condos, and some manufactured homes that meet FHA standards.

Some state programs offer single-purpose reverse mortgages for property taxes or repairs.

The application process for a reverse mortgage is designed to ensure that borrowers are well-informed and protected. Here’s what to expect:

Step 1: Counseling –

Attend a required session with a HUD-approved counselor. You’ll receive a certificate of completion that is needed to move forward.

Step 2: Loan Application –

Work with your CrossCountry Mortgage reverse mortgage specialist to complete the application and submit necessary documentation, such as proof of age, income, and insurance coverage.

Step 3: Home Appraisal –

An FHA-approved appraiser will assess your home to determine its market value and ensure it meets eligibility criteria.

Step 4: Underwriting –

Your lender will review all documentation, verify your eligibility, and assess your ability to cover ongoing property expenses.

Step 5: Closing –

At closing, you’ll sign documents and choose your payment option.

As with any mortgage, be aware of standard closing costs, including origination fees, appraisal fees, and title insurance. For HECMs, some of these costs are regulated by HUD, while others may vary by lender and location.

A reverse mortgage isn’t just a loan — it’s a tool that can offer financial flexibility, peace of mind, and the ability to age comfortably in your own home. We’ll help you understand costs, benefits, and repayment options.

Contact a CrossCountry Mortgage loan officer today for a complimentary consultation. We’ll help you explore the options, calculate your potential loan amount, and walk you through every step of the process.