Paying for Care With a Reverse Mortgage: Rules and Traps

What is a reverse mortgage (HECM)?

A reverse mortgage, specifically the Home Equity Conversion Mortgage (HECM) program, is a loan insured by the Federal Housing Administration (FHA) that allows homeowners aged 62 or older to convert part of their home equity into loan proceeds. Unlike a traditional mortgage, you do not make monthly mortgage payments. Instead, the loan balance grows over time as interest and fees are added, and the loan becomes due when the last borrower dies, sells the home, or moves out for more than 12 consecutive months (such as moving into a nursing home or assisted living facility).

Who is eligible for a reverse mortgage?

To qualify for an HECM reverse mortgage, you must:

1. Be at least 62 years old.
2. Own the home outright or have a low existing mortgage balance that can be paid off with the loan proceeds.
3. Live in the home as your primary residence.
4. Complete a HUD‑approved counseling session with an independent counselor.
5. Meet the property requirements: the home must be a single‑family home, a 2‑4 unit property with one unit occupied by you, a HUD‑approved condominium, or a manufactured home that meets FHA requirements.

How does a reverse mortgage work?

After counseling and loan approval, you can choose to receive proceeds as a lump sum, monthly payments, a line of credit, or a combination. Interest and fees are added to the loan balance each month. You retain title to the home and must continue to pay property taxes, homeowners insurance, and maintain the property. The loan is non‑recourse: you or your heirs will never owe more than the home's value when the loan is repaid. The loan becomes due when the last borrower permanently leaves the home (typically after 12 months in a care facility), sells the home, or passes away.

What are the costs and fees associated with a reverse mortgage?

Reverse mortgages include several costs: an origination fee (capped by HUD), mortgage insurance premiums (both an upfront premium and an annual premium), closing costs (title search, appraisal, recording fees, etc.), and servicing fees. These costs are typically financed into the loan, meaning they increase the initial loan balance. Interest accrues on the loan balance over time. Exact amounts vary by lender and loan terms, but HUD sets limits on certain fees. For 2026, the nationwide maximum claim amount (the lending limit) is $1,249,125.

How much can you borrow?

The amount you can borrow depends on your age (or the youngest spouse's age if married), current interest rates, and the appraised value of your home (subject to the HECM maximum claim amount). Older borrowers and those with more home equity can access more funds. HUD provides principal limit tables that determine the percentage of your home's value you may borrow. In 2026, the HECM nationwide maximum claim amount is $1,249,125, meaning even if your home is worth more, the loan amount is capped at this figure.

What are the risks or traps of a reverse mortgage?

Key risks include:

1. Accumulating interest and fees that can significantly increase the loan balance over time.
2. The possibility of owing more than the home's value if home values decline (though the non‑recourse feature protects you or your heirs from paying more than the home's value).
3. The risk of foreclosure if you fail to pay property taxes, homeowners insurance, or maintain the property.
4. Potential impact on eligibility for needs‑based programs such as Medicaid and Supplemental Security Income (SSI) because loan proceeds can count as assets or income.
5. The risk of scams targeting older adults.

The Consumer Financial Protection Bureau (CFPB) warns that the costs of a reverse mortgage may exceed the lifetime benefits for some borrowers, and that consumers should carefully consider alternatives and costs before proceeding.

Can you use a reverse mortgage to pay for care?

Yes, many borrowers use reverse mortgage proceeds to help pay for in‑home care, assisted living, or other long‑term care expenses. However, because the loan reduces your home equity, it may leave fewer assets to cover future care needs or to pass to heirs. It is important to compare the cost of care with the loan amount, interest, and fees, and to consider how long you expect to need care. Consulting a financial planner or elder‑law attorney can help you determine if a reverse mortgage is a suitable option for your situation.

Does a reverse mortgage affect Medicaid or SSI eligibility?

Reverse mortgage proceeds are not considered taxable income and generally do not affect Social Security benefits. However, if you receive loan proceeds and do not spend them in the month received, the remaining cash may count toward your asset limit for Medicaid and SSI, which are needs‑based programs with strict asset limits. For example, in 2025 the federal SSI asset limit is $2,000 for an individual and $3,000 for a couple. Some states have different limits. Medicaid also has asset limits that vary by state. If you plan to apply for Medicaid, you should consult your state Medicaid agency or a qualified benefits adviser to understand how reverse mortgage proceeds are treated in your state and to plan accordingly.

What happens to the loan when you move out, sell the home, or pass away?

The reverse mortgage becomes due when the last borrower permanently leaves the home (typically after 12 consecutive months in a nursing home or assisted living facility), sells the home, or passes away. At that point, the loan balance (original principal plus accrued interest and fees) must be repaid. Usually, the home is sold to repay the loan. Any remaining equity after repayment goes to you or your heirs. If the home sells for less than the loan balance, the non‑recourse feature means you or your heirs are not responsible for the difference—the FHA insurance covers the shortfall.

Is counseling required before getting a reverse mortgage?

Yes. HUD requires that all prospective HECM borrowers complete a counseling session with a HUD‑approved independent counselor before the loan can be processed. The session covers how reverse mortgages work, eligibility, costs, repayment options, and alternatives. The counselor must provide a certificate of completion, which you submit to the lender. This requirement helps ensure you understand the obligations and risks involved.

Where these rules come from

The information about HECM eligibility, loan limits, counseling requirements, and the non‑recourse nature of the loan comes from the U.S. Department of Housing and Urban Development (HUD), including HUD Mortgagee Letters and the HECM program description on hud.gov. The risks, costs, and consumer warnings are based on reports from the Consumer Financial Protection Bureau (CFPB). Details about how loan proceeds may affect Medicaid and SSI eligibility are drawn from state Medicaid agency guidelines and federal SSI rules. This is not legal, tax, or financial advice for an individual situation.