Reverse Mortgages Explained: How They Work, Who Qualifies, and Why They’re Not Just a Last Resort
Reverse mortgages are one of the most misunderstood tools in housing finance.
Many homeowners have heard outdated horror stories or assume a reverse mortgage means “the bank takes your house” or “my kids will inherit debt.” Those concerns are understandable — but they are usually based on incomplete information.
Today’s reverse mortgages, when structured properly, can be a thoughtful and strategic tool for homeowners age 62+ who want more flexibility in retirement.
This guide answers the most common and most important questions:
What is a reverse mortgage?
How does it actually work?
Who qualifies?
What types exist (HECM vs proprietary)?
Can you use one to buy a home?
How can it be used strategically?
What is a LESA?
What happens when a borrower passes away?
What Is a Reverse Mortgage?
A reverse mortgage is a loan that allows homeowners age 62 or older to access a portion of their home equity without making required monthly principal and interest mortgage payments.
Instead of the borrower sending a mortgage payment each month, interest accrues over time and the loan balance gradually increases. The loan is typically repaid later when:
The home is sold
The borrower permanently moves out
Or the last borrower passes away
Important: You still own the home. Title does not transfer to the bank. The lender simply records a lien, just like a traditional mortgage.
Understanding the Alignment: Borrower and Lender Incentives
One of the biggest misconceptions about reverse mortgages is that the lender benefits if the loan grows and the homeowner loses equity.
In reality, both sides are aligned more than people realize.
Most homeowners want stability, flexibility, and — if possible — to preserve equity for their heirs.
Lenders, likewise, do not want to end up holding an underwater property where the loan balance exceeds the home’s value. That creates risk and loss on their side. Reverse mortgages are built with guardrails — including principal limits based on age and home value, occupancy requirements, and in the case of HECM loans, federal insurance — to help manage that risk.
And even if the home value declines and the loan balance eventually exceeds the property’s value, reverse mortgages are generally non-recourse, meaning the debt is satisfied through the home itself. Heirs are not personally responsible for any shortfall.
That protection is built into the structure.
How Does a Reverse Mortgage Work?
At its core, a reverse mortgage converts a portion of your home equity into accessible funds while removing (or avoiding) a required monthly principal and interest payment.
Depending on the program and your goals, funds can typically be structured as:
A lump sum
Monthly payments
A line of credit
Or a combination of those options
The homeowner must still:
Pay property taxes
Maintain homeowners insurance
Keep the home in reasonable condition
Live in the home as their primary residence
Pay HOA dues if applicable
If those responsibilities are met, the reverse mortgage remains in good standing.
What Is a LESA?
A common concern is: “What happens if I struggle to pay property taxes or insurance later in life?”
Some reverse mortgages offer what is called a Life Expectancy Set-Aside (LESA).
A LESA sets aside a portion of the loan proceeds specifically to cover future property taxes and homeowners insurance. Instead of the borrower budgeting for those payments annually, the loan can reserve funds to handle them.
This can provide additional stability for borrowers who want added protection or whose financial profile requires it.
It is not mandatory for everyone and does reduce available proceeds, but for the right borrower, it can be a valuable safeguard.
Who Qualifies for a Reverse Mortgage?
Most reverse mortgage programs require:
At least one borrower age 62 or older
The home must be a primary residence
Sufficient home equity (or down payment for a purchase)
The ability to maintain taxes, insurance, and property upkeep
HUD counseling for HECM loans
Credit score is typically not the main factor the way it is for traditional mortgages, but lenders still review the overall financial picture to ensure sustainability.
Types of Reverse Mortgages
HECM (Home Equity Conversion Mortgage)
The HECM is the most common reverse mortgage and is insured by the Federal Housing Administration (FHA).
It includes:
Required HUD counseling
Federal consumer protections
FHA lending limits
Non-recourse protections
Proprietary Reverse Mortgages
Proprietary reverse mortgages are private (non-FHA) programs offered by certain lenders.
They can be helpful when:
The property value exceeds FHA limits
A borrower needs alternative structuring
A situation falls outside standard HECM guidelines
Proprietary does not simply mean “jumbo.” It means the program is privately backed rather than FHA-insured.
HECM for Purchase: Buying a Home Without a Mortgage Payment
One of the most underutilized strategies is HECM for Purchase.
With this structure:
The borrower brings a required down payment (often from selling a prior home).
The reverse mortgage finances the remaining eligible portion.
The borrower moves into the new home without a required monthly principal and interest payment.
This can be especially helpful for retirees who:
Want to downsize
Want to relocate closer to family
Need a more accessible home
Prefer not to tie up all liquidity in a cash purchase
Do not want to take on a new traditional mortgage in retirement
Accessing Equity to Buy Another Home Without Adding a Payment
There is another strategy many homeowners overlook.
A reverse mortgage on your current primary residence can allow you to access equity and use those funds to purchase another home — without adding a required monthly principal and interest payment to your budget.
For example:
A homeowner establishes a reverse mortgage on their primary residence.
They access a portion of their equity.
Those funds are used to purchase another home.
Because the reverse mortgage does not require monthly principal and interest payments, they have unlocked capital without layering in a new payment.
This can create flexibility for:
Gradual relocation plans
Buying before selling
Multi-generational planning
Strategic housing transitions
Structure matters — especially around occupancy rules — but used properly, this approach can create options that traditional financing would limit.
Strategic Uses of Reverse Mortgages
Reverse mortgages are not only for financial emergencies. They can serve strategic purposes, including:
Eliminating an Existing Mortgage Payment
Replacing a traditional mortgage can remove a required monthly obligation and improve retirement cash flow.
Creating a Standby Line of Credit
A reverse mortgage line of credit can act as a safety net for healthcare costs, home repairs, or unexpected expenses — without requiring monthly payments.
Supplementing Retirement Income
Some retirees use reverse mortgage funds strategically to reduce pressure on investment withdrawals during down markets.
Restructuring Other Required Debt
In certain cases, reverse mortgage proceeds can be used to eliminate high monthly consumer debt payments and increase monthly flexibility.
The key is thoughtful planning — not reactionary use.
What Is the Process?
The reverse mortgage process generally includes:
Strategy consultation
Review of estimated eligibility
HUD counseling (HECM loans)
Application and disclosures
Appraisal
Underwriting
Closing
A knowledgeable team helps ensure the structure aligns with long-term goals.
What Happens When the Borrower Passes Away?
When the last borrower passes away (or permanently moves out), the loan becomes due.
The family typically has options:
Sell the home and keep remaining equity after repayment
Refinance into a traditional mortgage and keep the home
Pay off the loan with other funds
If the home value is lower than the loan balance, heirs are generally not personally liable for the difference. The debt is satisfied through the property.
Final Thoughts
Reverse mortgages are not inherently good or bad. They are financial tools.
When misunderstood, they create fear.
When structured intentionally, they can:
Remove required mortgage payments
Increase liquidity
Provide a financial safety net
Support housing transitions
Protect retirement flexibility
The Lassig Team at CrossCountry Mortgage works alongside a dedicated team of reverse mortgage specialists who focus exclusively on this type of loan. That specialization ensures structure, clarity, and strategy — not confusion.
If you are exploring whether a reverse mortgage fits your situation, the right conversation is not “Should I get one?”
It is “Does this improve my overall financial position?”
Because mortgages — even reverse mortgages — should not be transactional.
They should be strategic.
