What is a Reverse Mortgage?
A reverse mortgage, officially called a Home Equity Conversion Mortgage (HECM), allows homeowners age 62 and older to convert part of their home equity into tax-free cash without selling their home or making monthly mortgage payments. Instead of paying the lender, the lender pays you.
Reverse mortgages are insured by the Federal Housing Administration (FHA) and regulated by the Department of Housing and Urban Development (HUD), providing significant consumer protections.
Minimum Age Requirement
Monthly Payments Required
Loan Proceeds
How Reverse Mortgages Work
Traditional Mortgage vs. Reverse Mortgage
Traditional Mortgage:
- • You make monthly payments to lender
- • Loan balance decreases over time
- • Home equity increases
- • Risk of foreclosure if payments missed
Reverse Mortgage:
- • Lender makes payments to you
- • Loan balance increases over time
- • You retain ownership and title
- • No monthly mortgage payments
The Process
You qualify based on age (62+), home equity, and property condition
Complete required HUD counseling session
Choose how to receive funds (lump sum, line of credit, monthly payments)
Live in home while loan balance grows with interest
Loan becomes due when you sell, move, or pass away
Arizona Reverse Mortgage Requirements
Borrower Requirements
- ✓ Age: All borrowers must be 62 or older
- ✓ Occupancy: Must be your primary residence
- ✓ Equity: Substantial home equity required (typically 50%+)
- ✓ Existing Mortgage: Must be paid off or have low balance
- ✓ Financial Assessment: Demonstrate ability to pay property taxes and insurance
- ✓ Counseling: Complete HUD-approved counseling session
Property Requirements
- ✓ Property Type: Single-family home, 1-4 unit property, FHA-approved condo, or manufactured home (built after June 1976)
- ✓ Condition: Must meet FHA minimum property standards
- ✓ Maintenance: Property must be well-maintained
- ✓ Taxes & Insurance: Must stay current on property taxes and homeowners insurance
- ✓ HOA: Must keep HOA fees current if applicable
How You Can Receive Funds
Lump Sum
Receive all available funds at closing (fixed rate only)
Best for: Paying off existing mortgage, major expenses
Monthly Payments
Receive equal monthly payments for a set period or lifetime
Best for: Supplementing retirement income
Line of Credit
Access funds as needed; unused portion grows over time
Best for: Emergency reserves, flexibility
Combination
Mix monthly payments and line of credit
Best for: Regular income plus emergency access
Popular Choice: The line of credit option is most popular because it provides flexibility and the unused portion grows at the same rate as the loan interest rate, creating a larger available balance over time.
Advantages & Disadvantages
Advantages
- ✓ No monthly mortgage payments required
- ✓ Remain in your home and retain ownership
- ✓ Tax-free loan proceeds (consult tax advisor)
- ✓ Non-recourse loan - never owe more than home value
- ✓ Heirs can keep home by paying off loan balance
- ✓ Supplement retirement income
- ✓ Eliminate existing mortgage payment
- ✓ FHA-insured and regulated
Disadvantages
- ✗ Reduces equity available for heirs
- ✗ Interest and fees accumulate over time
- ✗ Must maintain property, taxes, and insurance
- ✗ May affect eligibility for needs-based programs
- ✗ Higher upfront costs than traditional mortgages
- ✗ Loan becomes due if you move or home isn't primary residence
- ✗ Can't deduct interest until loan is paid
- ✗ Complexity requires careful consideration
Understanding Reverse Mortgage Costs
Reverse mortgages have several costs, many of which can be financed into the loan:
Mortgage Insurance Premium (MIP)
Initial: 2% of home value (can be financed)
Annual: 0.5% of loan balance
Origination Fee
Greater of $2,500 or 2% of first $200,000 + 1% of amount over $200,000
Maximum: $6,000 (can be financed)
Third-Party Charges
Appraisal ($500-$700), title insurance, inspections, recording fees
Typically $1,500-$3,000 total (can be financed)
Servicing Fee
Monthly: $30-$35 (added to loan balance)
Interest Rate
Typically 1-2% higher than conventional mortgages
Adjustable rate most common (some fixed rate options)
Example: On a $400,000 home, initial costs might total $12,000-$18,000, most of which can be rolled into the loan balance.
When a Reverse Mortgage Makes Sense
Eliminating Existing Mortgage Payment
If you're 62+ with a mortgage payment straining your fixed income, a reverse mortgage can pay off your existing loan and eliminate that monthly payment.
Arizona Example: Phoenix homeowner with $400,000 home, $100,000 mortgage balance, $800/month payment can eliminate the payment and access additional funds.
Supplementing Retirement Income
Use monthly payments from a reverse mortgage to supplement Social Security or pension income, covering living expenses without touching other retirement savings.
Strategy: Delay Social Security to get higher payments while using reverse mortgage for income in the interim.
Healthcare and Long-Term Care
Access home equity to pay for in-home care, medical expenses, or modifications to age in place safely.
Benefit: Stay in your home longer rather than moving to assisted living facilities.
Emergency Reserves
Establish a reverse mortgage line of credit as an emergency fund that grows over time, protecting other retirement assets from market volatility.
Planning Tool: Acts as a safety net without requiring withdrawals from investments during down markets.
Alternatives to Consider
Home Equity Loan or HELOC
If you can afford monthly payments and have good credit, a home equity line of credit or home equity loan may have lower costs and interest rates.
Downsizing
Selling your current home and buying a smaller, less expensive property frees up equity without taking on debt.
Refinancing
If you have an existing mortgage with a high rate, refinancing to a lower rate could reduce your monthly payment significantly.
Frequently Asked Questions
Can I lose my home with a reverse mortgage?
Not as long as you meet the loan requirements: living in the home as your primary residence, paying property taxes and insurance, and maintaining the property. You retain ownership and title.
What happens to my spouse if I pass away?
If your spouse is a co-borrower (also 62+), they can continue living in the home without repaying the loan. Non-borrowing spouses under 62 may have protections depending on when the loan originated - consult with a reverse mortgage counselor about your specific situation.
Will my heirs inherit anything?
Yes. When the loan becomes due, heirs can either repay the loan balance (or 95% of appraised value, whichever is less) and keep the home, or sell the home. Any remaining equity after paying off the loan belongs to your heirs.
Can I use a reverse mortgage to buy a home in Arizona?
Yes! The HECM for Purchase program lets you buy a new primary residence using a reverse mortgage, combining your down payment with reverse mortgage proceeds. This is popular with Arizona retirees downsizing or relocating.
How much can I borrow?
The amount depends on the youngest borrower's age, current interest rates, home value (up to $1,149,825 for 2025), and amount owed on existing mortgages. Generally, the older you are and the more equity you have, the more you can borrow - typically 40-60% of home value.
Is a Reverse Mortgage Right for You?
Schedule a free consultation to discuss your situation and explore all your options.