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Reverse mortgage for parents: What adult children need to know
Key Points
A reverse mortgage may allow older homeowners to access home equity without a required monthly mortgage payment, but they must continue paying property taxes and insurance and maintain the home.
The most common reverse mortgage, the FHA-insured HECM, includes some protections for borrowers and their heirs.
Adult children are not personally responsible for reverse mortgage debt, but the loan balance does reduce the home equity left to inherit.
Are your parents considering a reverse mortgage? Reverse mortgages haven’t always had the best reputation, so it makes sense that adult children might be concerned when their parents are considering one.
Here’s the reality: Today, most reverse mortgages are heavily regulated financial products with clear rules set by the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD). That’s not to say they are without risks—they are loans with obligations that must be met or the loan becomes due.
However, if your impression of a reverse mortgage includes a crying widow evicted from her home after her husband’s death, it is worth digging a little deeper to make sure you understand all the nuances.
This guide walks through what a reverse mortgage is, the protections in place for seniors, and how a reverse mortgage might impact your parents’ estate.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
How do reverse mortgages work?
A reverse mortgage is a loan that may allow homeowners age 62 or older (or 55+ for some proprietary reverse mortgage products) to access a portion of their home’s equity without selling the home or taking on a required monthly mortgage payment.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Instead of making payments to a lender, your parents receive funds based on factors like their age, the home’s value, and current interest rates. The loan balance grows over time as interest and fees are added.
The most widely used reverse mortgage is called a Home Equity Conversion Mortgage (HECM). HECMs are:
- Insured by the FHA1
- Regulated by the HUD
- Require independent counseling
Because HECMs are federally insured, they come with specific consumer protections, including safeguards for non-borrowing spouses and heirs.
There are also proprietary reverse mortgages, which are offered by private lenders and are not FHA-insured. These may be used for higher-value homes, but they follow different guidelines. The vast majority of reverse mortgages today are HECMs.
With a traditional mortgage, the balance decreases over time as payments are made. But with a reverse mortgage, the loan balance increases over time because:
- Your parents are receiving money from the home’s equity
- Interest accrues on the outstanding balance
- Mortgage insurance premiums (MIP) are added (for HECMs)
Mortgage insurance is required for FHA-insured HECMs. It protects both the borrower and the lender by ensuring the loan remains non-recourse2, meaning neither your parents nor their heirs would owe more than the home’s value when the loan becomes due.
To keep the loan in good standing, your parents will need to:
- Live in the home as their primary residence
- Pay property taxes
- Maintain homeowners insurance
- Keep the home in good repair
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
A reverse mortgage becomes due and must be repaid when the loan terms are not met, they sell the home, or the last borrower passes away.
At that point, the home is typically sold and the loan is repaid from the sale proceeds, though you may also choose to pay off the loan with personal funds. If the home sells for more than the loan balance, the remaining equity goes to the borrower or their heirs. If it sells for less, FHA insurance covers the difference on a HECM loan.
→ For a more detailed overview, read our full guide: How does a reverse mortgage work?
Is it a bad idea for my parents to get a reverse mortgage?
No, reverse mortgages are not always a bad idea, but they are not right for everyone. Whether or not a reverse mortgage is a good idea depends on your parents’ financial situation, goals, and long-term plans. For some retirees, it may provide helpful flexibility. For others, it could create complications. Here are some pros and cons to consider:
Potential advantages to a reverse mortgage include:
- Access to cash without selling the home: Your parents may be able to convert part of their home equity into usable funds while remaining in their home.
- No required monthly mortgage payment: This could free up cash flow in retirement.
- Non-recourse protection: With an FHA-insured HECM, neither your parents nor their heirs would owe more than the home’s value when the loan becomes due.1,2
- Flexibility in how funds are used: Proceeds may be used for healthcare, home repairs, travel, funding education, or just providing financial flexibility.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
The right to remain in the home is contingent on paying property taxes and homeowner’s insurance, maintaining the home, and complying with the loan terms
Potential drawbacks for parents considering a reverse mortgage include:
- The loan balance grows over time: This reduces the equity left in the home and potential equity for heirs.
- Upfront and ongoing costs: Reverse mortgages include upfront costs and fees, such as closing costs and, for HECMs, mortgage insurance premiums.
- Loan obligations must be met: Your parents must continue to pay property taxes and insurance and maintain the home, or the loan becomes due.
- Less inheritance: If the home is sold to repay the loan, there may be less equity remaining for heirs.
A reverse mortgage works best for homeowners who plan to stay in their home long-term and need additional liquidity. It may not be a strong fit if your parents expect to move in a few years or if preserving home equity for inheritance is their top priority.
To learn more, please visit the Consumer Financial Protection Bureau’s “Reverse Mortgage: A Discussion Guide.”
Will my parents still own their home if they take out a reverse mortgage?
Yes. Your parents remain the legal owners of their home with a reverse mortgage. It is still a loan, not a sale. The lender places a lien on the property, just like with a traditional mortgage, but the title stays in your parents’ name.
That means they:
- Keep ownership of the home
- Retain the right to live there as long as they meet loan obligations
- Benefit from any future home value appreciation
However, ownership comes with responsibilities. Your parents must continue to live in the home as their primary residence, pay property taxes, maintain homeowners insurance, and keep the home in good repair. If those obligations are not met, the loan could become due.
→ Learn more in our guide: Who owns your home with a reverse mortgage?
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Can my parents lose their home with a reverse mortgage?
Yes, your parents can lose their home with a reverse mortgage–but only if they fail to meet loan obligations such as paying property taxes or maintaining insurance. A reverse mortgage does not automatically trigger foreclosure. As long as the borrower lives in the home as a primary residence and keeps property charges current, they can remain there for life.
A reverse mortgage may become due when your parents:
- Move out of the home
- Sell the property
- Fail to pay property taxes or homeowners insurance
- Do not maintain the home
- Pass away
If both parents are borrowers on the loan, the home doesn’t come due until both pass away. Even if one is a non-borrowing spouse, there are some protections that may allow the surviving parent to remain in the home. Lenders can’t simply decide the loan is due and take the home—specific events outlined in the loan documents must occur.
The right to remain in the home is contingent on paying property taxes and homeowner’s insurance, maintaining the home, and complying with the loan terms
The most common risk is failing to keep up with property-related expenses like taxes and insurance. If those are not paid and the issue is not resolved, the lender may begin foreclosure proceedings.
→ For a deeper dive, read our guide: Reverse mortgage foreclosure: How it happens and what to do next.
Will I get stuck with a bill from the reverse mortgage when they pass?
No, as an heir, you are not responsible for reverse mortgage debt. Most reverse mortgages today are non-recourse loans.2 That means repayment is limited to the value of the home—not other assets in your parents’ estate and not your personal finances.
When the last borrower passes away, the loan becomes due. At that point, heirs typically have a few repayment options:
- Sell the home and use the proceeds to repay the loan
- Keep the home by paying off the full loan balance (usually by refinancing or using other funds)
- Walk away if the home is worth less than the loan balance
If the home sells for less than what is owed on an FHA-insured HECM, mortgage insurance covers the difference. You would not be responsible for paying the shortfall.
The important thing to understand is this: you may inherit the home, but you do not inherit the debt beyond the home’s value.
→ Learn more in our guide for heirs: Are heirs responsible for reverse mortgage debt?
What happens to my parents’ reverse mortgage when they pass away?
When the last borrower passes away, the reverse mortgage becomes due and payable. The lender will notify the estate, and heirs are given a set period of time to decide what to do next. In most cases, that means choosing between selling the home or keeping it.
Here’s how it typically works:
- Sell the home: The loan is repaid from the sale proceeds. Any remaining equity goes to the estate.
- Keep the home: Heirs may pay off the loan balance, often by refinancing into a traditional mortgage or using other funds.
- If the loan balance is higher than the home’s value: Heirs may purchase the home for 95% of the current appraised value (for FHA-insured HECMs) or simply allow the lender to sell it. Mortgage insurance covers any shortfall.
You would not be personally responsible for more than the home’s value if the loan is a non-recourse FHA-insured HECM. The key takeaway: a reverse mortgage does not mean the bank automatically takes the home. The estate has options.
→ For step-by-step details, read: How do you repay a reverse mortgage?
How can my parents use the proceeds of a reverse mortgage loan?
There are virtually no restrictions on how your parents use the money from a reverse mortgage. How they receive the funds depends on the structure they choose. With a HECM, proceeds may be taken as:
- A lump sum
- A line of credit
- Monthly payments
- Or a combination of these options
Common uses include:
- Paying off an existing mortgage (often required)
- Covering healthcare expenses
- Making home repairs or modifications to age in place
- Supplementing retirement income
- Creating a financial cushion for unexpected expenses
Some retirees use a reverse mortgage strategically; for example, drawing from a line of credit during market downturns instead of selling investments at a loss. The right approach depends on your parents’ overall retirement plan, cash flow needs, and long-term goals.
→ To learn more about how proceeds are disbursed, read our guide: Understanding reverse mortgage payout options.
The right to remain in the home is contingent on paying property taxes and homeowner’s insurance, maintaining the home, and complying with the loan terms.
Final thoughts for adult children
If your parents are considering a reverse mortgage, it’s normal to feel protective. You want to make sure they are safe, financially secure, and not being taken advantage of.
The reality is that today’s reverse mortgages, especially FHA-insured HECMs, are structured with clear rules, required counseling sessions, and consumer protections. That does not mean they are the right fit for everyone, but it does mean the horror stories many people remember aren’t the whole picture.
The most important step is open conversation. Ask questions. Review the terms. Encourage your parents to involve a trusted financial advisor. At the end of the day, most adult children want the same thing: stability, dignity, and peace of mind for their parents. The right decision is the one that supports those goals.
Curious how much your parents might be eligible for with a reverse mortgage? Try our reverse mortgage calculator.
FAQs for adult children of reverse mortgage borrowers
Are there monthly payments with a reverse mortgage?
There is no required monthly mortgage payment with a reverse mortgage as long as your parents live in the home and meet loan obligations. However, they must still pay property taxes, homeowners insurance, and maintain the home. If those responsibilities are not met, the loan could become due.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Are there closing costs for reverse mortgages?
Yes, reverse mortgages include closing costs. These may include origination fees, appraisal fees, servicing fees, and, for FHA-insured HECMs, mortgage insurance premiums (MIP). Most costs are financed into the loan rather than paid out of pocket, which increases the loan balance over time.
Is a reverse mortgage better than a home equity line of credit (HELOC) for my parents?
It depends on your parents’ financial situation and goals. A HELOC typically requires monthly payments and income qualification. A reverse mortgage does not require monthly mortgage payments but does reduce home equity over time.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
What happens if my parents need to move into assisted living?
If your parent moves out of the home permanently, including moving into assisted living or a rehabilitation center for more than 12 consecutive months, the reverse mortgage becomes due. At that point, the home is typically sold and the loan is repaid from the proceeds. Any remaining equity belongs to your parents or their estate.
Can my parents add me to the title after getting a reverse mortgage?
Adding a child to the title after closing may trigger loan complications because reverse mortgages are based on the age and residency of the borrower. Changing ownership could affect the loan terms or even cause the loan to become due. Speak with the servicer before making any changes to the title.
How does a reverse mortgage affect inheritance?
A reverse mortgage reduces the equity left in the home over time because the loan balance grows. If your parents pass away, heirs may sell the home to repay the loan and keep any remaining equity. If preserving the full value of the home is a top priority, a reverse mortgage may not align with that goal.
1 These materials were not provided by HUD or FHA and were not approved by FHA or any government agency.
2 A non-recourse reverse mortgage transaction limits the homeowner’s liability to the proceeds of the sale of the home (or any lesser amount specified in the credit obligation).
Non-recourse means that you, or your estate, can’t owe more than the value of your home when the loan becomes due and the home is sold.
Non-recourse means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender cannot look to your other assets (or your estate’s assets) to meet the outstanding balance on your loan.
About the author
Danielle Antosz
Danielle Antosz is the Web Content Manager at Finance of America and a journalist with more than 10 years of experience whose work has appeared in MoneyWise, MSN, Yahoo! Finance, and The Motley Fool. She specializes in making complex financial topics accessible and is passionate about advancing financial literacy.
Disclaimer
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For tax advice, please consult a tax professional. For more information about whether a reverse mortgage fits into your retirement strategy, you should consult your financial advisor.
