For many older Arizonans, the home is the largest asset they own and the one that gets the least use as a financial tool. A reverse mortgage lets homeowners turn part of that equity into cash without selling and without making a monthly mortgage payment. It can also become an expensive mistake when it is taken for the wrong reasons or without a clear plan. This guide explains how reverse mortgages work, where they help, where they hurt, and what your options are if you take one and later want out.
How a Reverse Mortgage Works
A traditional mortgage is a loan you pay down over time. A reverse mortgage runs the other way. The lender pays you, either in a lump sum, monthly payments, a line of credit you draw on as needed, or a combination. Interest and fees are added to the loan balance each month, so the amount you owe grows instead of shrinking. Nothing is due until the last borrower dies, sells the home, or no longer lives there as a primary residence.
The most common type is the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration. Almost everything in this article applies to HECMs. A second category, called proprietary or jumbo reverse mortgages, is offered by private companies, is not federally insured, and may allow larger loans. These carry fewer of the federal protections described below, so ask a lot of questions before considering one.
To qualify for a HECM, the youngest borrower must be at least 62. The home must be your primary residence and must meet FHA property standards. You need to own it outright or have enough equity that the loan proceeds can pay off any existing mortgage at closing. You must also complete counseling with a HUD-approved counselor before you can proceed, and the lender will review your income, assets, and credit history to confirm you can keep up with property taxes, homeowners insurance, and upkeep.
How much you can borrow depends on the age of the youngest borrower, current interest rates, and the value of the home, up to a federal cap. For 2026, the HECM maximum claim amount is $1,249,125. That number is a ceiling on the home value the FHA will count, not the amount you receive, and the actual payout is typically a fraction of the home’s value. Older borrowers with more equity generally qualify for more.
The Benefits
No required monthly mortgage payment. This is the main appeal. For a retiree on a fixed income, eliminating a monthly principal and interest payment can free up real money. If you still owe on a traditional mortgage, the reverse mortgage proceeds pay it off first, which can turn that old payment into breathing room.
You stay in your home and keep the title. The home remains yours. You are not renting it from the bank. As long as you live there, keep up the required obligations, and meet the loan terms, you can remain.
Flexible ways to receive money. A lump sum is one option, but many advisors point out that a reverse mortgage line of credit can be the more useful arrangement. It gives you a reserve to draw on for emergencies, home repairs, or medical costs, and you only accrue interest on what you actually borrow.
The loan is non-recourse. This is one of the most important protections. On a HECM, neither you nor your heirs can ever owe more than the home is worth when the loan is repaid, even if the balance grows past the home’s value or the housing market drops. Any shortfall is covered by the FHA insurance you pay into.
Proceeds are generally not treated as income. Money from a reverse mortgage is a loan advance, not earnings, so it generally does not count as taxable income and does not reduce Social Security or Medicare benefits. Ask a tax professional about your specific situation.
Built-in consumer protections. HECMs require independent counseling before closing, a financial assessment of your ability to keep up with property charges, and a right to cancel within three business days after closing. There are also protections for a younger spouse who is not on the loan, covered below.
The Pitfalls
It is expensive. This is the biggest drawback. Federally insured HECMs carry an upfront mortgage insurance premium of 2 percent of the home’s value (up to the lending limit) and an ongoing annual premium of 0.5 percent of the loan balance. On top of that come origination fees, which are capped at $6,000, plus appraisal, title, and closing costs, and sometimes a small monthly servicing fee. Most of these costs can be rolled into the loan, which is convenient but means you pay interest on them for as long as the loan lasts. On a home worth $400,000, the upfront insurance premium alone is $8,000.
Your equity shrinks over time. Because interest and fees compound, the balance on a reverse mortgage grows each year, and the equity left in your home shrinks. The longer you keep the loan, the less remains for you, and eventually for your heirs. That is not a hidden flaw. It is how the product works. But families are sometimes surprised by it.
You are still responsible for the house. A reverse mortgage does not end your housing costs. You must keep paying property taxes, homeowners insurance, and HOA dues if you have them, and you must maintain the property. If you fall behind, the lender can declare the loan in default and eventually foreclose. This is a real risk for seniors whose budgets are already tight, and it is one of the main reasons the financial assessment exists.
Moving out can trigger repayment. The loan comes due if you stop living in the home as your primary residence. A stay in a nursing facility or with family for more than twelve consecutive months counts. If you may need assisted living or memory care in the next several years, a reverse mortgage may be a poor fit, because you would be paying the heavy upfront costs for a short stay.
It affects what your heirs receive. When the last borrower dies, the loan becomes due. Heirs generally have 30 days to decide what to do, and that window can be extended up to six months and, in some cases, up to a year with lender approval. They can sell the home, repay the loan and keep it, or hand it to the lender. If the home is worth less than the balance, they can keep it by paying 95 percent of its appraised value, or simply walk away without owing anything more. If you want to leave the house to your children, talk with them before you sign.
It can affect needs-based benefits. Social Security and Medicare are not affected, but programs such as Medicaid (in Arizona, AHCCCS and ALTCS) and Supplemental Security Income look at your countable assets. Reverse mortgage money that you take and leave sitting in a bank account past the month you receive it can count against those limits. Speak with an elder law attorney or benefits counselor first if you rely on or may need one of these programs.
Scams and high-pressure sales. Reverse mortgages have long been a target for bad actors and aggressive marketing. Be wary of anyone who pushes you to act fast, bundles the loan with an investment or annuity pitch, offers free gifts, or contacts you out of the blue. Use only HUD-approved lenders, and never let a contractor, financial salesperson, or relative steer you into borrowing.
The Non-Borrowing Spouse Question
Couples with an age gap deserve special attention. Only spouses aged 62 or older can be borrowers, so a younger spouse is sometimes left off the loan. Under current HECM rules, an eligible non-borrowing spouse can generally stay in the home after the borrowing spouse dies, as long as the property taxes, insurance, and upkeep are maintained. But the loan amount is based on the younger spouse’s age, so the couple receives less. Being left off the loan also limits the younger spouse’s options in other ways, so this decision is worth reviewing carefully with a counselor.
Can You Get Out of a Reverse Mortgage?
Yes. A reverse mortgage is not a life sentence. There are several ways to end one, and the right choice depends on your situation.
Cancel within three business days. Federal law gives you a right of rescission on a reverse mortgage. Within three business days after closing, you can cancel the loan and generally have the fees you paid returned.
Pay it off at any time. HECMs do not carry prepayment penalties, so you can repay the balance in full or in part whenever you choose. Voluntary partial payments reduce your balance, and if you have a line of credit, they can restore available borrowing room. You will owe the full balance, which includes the amount you borrowed plus the accrued interest and mortgage insurance premiums.
Sell the home. Selling is the most common way out. The loan is repaid from the sale proceeds, and anything left over is yours. If the home sells for less than the balance, the non-recourse protection means you do not owe the difference.
Refinance into another loan. If you have enough equity and can qualify, you can pay off the reverse mortgage with a traditional mortgage, a home equity loan or line of credit, or, in some cases, a new HECM. Refinancing a reverse mortgage generally requires fresh costs, so it rarely makes sense unless your circumstances have changed in a way that clearly justifies it.
Use other funds. Savings, proceeds from selling other assets, or help from family can pay off the balance.
Move out or pass on. When the last borrower leaves the home permanently or passes away, the loan comes due and the sale or repayment process described above begins.
The important caveat is that getting out costs money. The upfront insurance premium, origination fee, and closing costs you paid at the start are not refunded when you leave, and the balance has been growing the whole time. Exiting after only a few years is the most expensive outcome, because you have paid the high startup costs over a short period. That is why the decision should be made carefully at the start, with a plan you expect to hold up for many years.
Who a Reverse Mortgage Tends to Fit, and Who It Doesn’t
A reverse mortgage tends to make the most sense for a homeowner who plans to stay in the house for the long term, has substantial equity, wants to stay independent, and has a clear reason to borrow, such as paying off an existing mortgage, covering the cost of aging in place, or creating a safety net. It tends to make the least sense for someone who expects to move within a few years, who cannot comfortably afford taxes and insurance, who wants to preserve the home as an inheritance, or who is being pressured into it.
Alternatives Worth Comparing
Before committing, look at the other ways to free up cash or cut costs. Selling and downsizing, a home equity loan or line of credit (which requires monthly payments and income to qualify), property tax relief programs for seniors, help with home repairs or energy costs through local agencies, and benefits you may not be claiming can each address the same problem. Your local Area Agency on Aging can point you toward programs in your county.
Before You Sign
Talk to a HUD-approved counselor, which is required for a HECM, and bring your family into the conversation. Get quotes from more than one lender, because costs vary. Ask for every fee in writing, and ask what happens to the loan if you need care outside the home. If any part of the pitch feels rushed, walk away. A good reverse mortgage will still be available after you have taken the time to think.
This article is for general information only and is not financial, legal, or tax advice. Talk with a HUD-approved housing counselor and, where appropriate, an attorney or financial advisor before making a decision.
The figures in this article reflect 2026 HUD and CFPB guidance, but the lending limit resets every January, so update that number next year. The $8,000 example in the pitfalls section is simple math (2 percent of $400,000) and can be swapped for a different home value.
Sources:
HUD announces 2026 FHA loan limits
HousingWire: FHA raises 2026 HECM limit
HECM Reverse Mortgage 2026: How It Works, Limits and Costs
CFPB: Can my heirs keep or sell my home after I die?
The Mortgage Reports: Will the bank take your house?
HousingWire: When a reverse mortgage comes due, heirs face a clock