Educational only. Reverse mortgages are complex financial products with material long-term consequences. Run the math, talk to a HUD-approved counselor (required), and read the loan estimate line by line before signing.
The reverse mortgage industry has two problems: the product itself is a legitimate, federally-insured tool that's right for a narrow slice of retirees — and the marketing around it has been so aggressive for so long that nobody trusts it. Tom Selleck didn't help.
This guide ignores the marketing entirely and walks through the actual HECM math: how the Principal Limit Factor is set, what you'll really receive after fees, and the four scenarios where a reverse mortgage genuinely beats every alternative. Plug your numbers into the Reverse Mortgage Calculator as you read.
What a HECM actually is
99% of reverse mortgages in the US are HECMs — Home Equity Conversion Mortgages — insured by HUD. You must be 62+, occupy the home as primary residence, complete HUD-approved counseling, and keep paying property tax, insurance, HOA, and basic maintenance. The lender places a lien for the accruing balance. When the last borrower moves out, sells, or dies, the loan is repaid — typically by selling the home. Any equity left over goes to your heirs; if the loan balance exceeds home value (rare), HUD insurance covers the lender and heirs owe nothing extra (non-recourse).
How much you actually get: the PLF
HUD publishes a Principal Limit Factor (PLF) table that determines what % of your home value you can borrow. Two inputs drive it: age of youngest borrower and expected interest rate (10-year CMT + lender margin). The older you are and the lower the rate, the higher your PLF. At age 62 with a 7.25% expected rate, PLF is about 40%. At age 80 same rate, ~52%. If rates drop to 5%, the 72-year-old's PLF jumps from ~46% to ~55%.
Then it gets reduced by: any existing mortgage balance (paid off at closing), 2% upfront mortgage insurance premium on the max claim amount, origination fee (capped at $6,000), and ~$2,500 in title/appraisal/counseling. Net cash to you is usually 25–55% of home value.
The four ways to take the money
- Lump sum: Worst option for most. You pay MIP on cash sitting idle in checking.
- Monthly tenure (life annuity): Fixed payment for as long as you stay in the home. Predictable retirement income.
- Monthly term: Higher monthly for a fixed number of years.
- Line of credit (LOC): The most underrated option. The unused balance grows at the expected rate + 0.5% MIP. Open early, use late, and your borrowing capacity actually expands over time.
When a HECM is the right call
- House-rich, cash-poor retiree who wants to age in place. Property tax + medical bills exceed Social Security, but you don't want to sell.
- Delay Social Security to 70. Use HECM income from 62–70 to defer SS, boosting lifetime SS by ~32%.
- Sequence-of-returns hedge. Open a HECM LOC at 62, never touch it unless markets crash — then draw on the LOC instead of selling stocks at the bottom.
- Bridge to a planned sale. Pay off existing mortgage to eliminate the P&I, then sell in 5–10 years on your timeline rather than under duress.
When it's the wrong call
- You can pay your bills without it. Don't borrow expensive money you don't need.
- You plan to move in under 5 years. Upfront costs (4–6% of value) never amortize.
- You want to leave the home to heirs debt-free. Heirs can keep it by paying off the balance, but it's a project.
- You or your spouse is under 62 and not on title. Surviving non-borrowing spouse can lose the home in some pre-2014 loans.
The costs nobody mentions in the ad
On a $480K home: 2% upfront MIP ($9,600) + origination (~$5,000) + ~$2,500 closing = ~$17,100. Plus 0.5% annual MIP on the loan balance, accruing. A HECM is not "free money" — it's expensive money that's only worth it when the alternative (selling, downsizing, family loan, HELOC) is materially worse.