What Is a Reverse Mortgage and How Does It Work?

After 15 years structuring reverse mortgages in California and Arizona, I can tell you the biggest mistake is assuming this is simply a "last resort" loan instead of a cash-flow tool that can be planned years in advance.

This guide explains what a reverse mortgage is, how it works step by step, and what California homeowners 55 and older need to know before exploring it.

What Is a Reverse Mortgage?

A reverse mortgage is a loan that allows homeowners to convert a portion of their home equity into usable funds - without selling the home and without making monthly mortgage payments. The loan is repaid when you sell the home, move out permanently, or pass away.

Unlike a traditional mortgage where you make payments to a lender each month, a reverse mortgage works in the opposite direction: the lender makes funds available to you. Your name stays on the deed. You retain full ownership of your home throughout the life of the loan.

How Does a Reverse Mortgage Work?

Here is the basic process from start to finish:

� You apply for a reverse mortgage and have your home appraised.

� A lender calculates how much equity you can access based on your age, home value, and current interest rates.

� You receive funds as a lump sum, monthly payments, a line of credit, or a combination.

� Interest accrues on the loan balance over time - but you make no required monthly payments.

� The loan becomes due when you sell the home, move out permanently, or pass away. Your heirs can sell the home to repay the loan and keep any remaining equity.

In my experience working with homeowners in San Marcos and Carlsbad, I see this clicked into place when clients realize they can eliminate a $2,400 monthly mortgage payment without selling the home they planned to keep. A client in San Marcos recently told me the biggest surprise was not the math, but how much calmer retirement felt once the required payment was gone. We closed in just over five weeks after counseling because their title and payoff prep were done before application.

What Are the Different Types of Reverse Mortgages?

There are two main types available to California homeowners:

FHA HECM (Home Equity Conversion Mortgage)

The federally insured reverse mortgage, available to homeowners age 62 and older. The 2026 HECM lending limit is $1,249,125. HECMs are the most common type and come with significant consumer protections including mandatory HUD counseling.

Proprietary Reverse Mortgage

Private programs offered by individual lenders. In California, these are available to homeowners as young as age 55 and can access equity on homes valued well above the HECM limit. These are especially common in high-value California markets like San Diego, Los Angeles, and the Coachella Valley.

How Are Reverse Mortgage Funds Paid Out?

You choose how you receive your funds:

� Lump sum - a single payment at closing (fixed rate)

� Monthly payments - a set amount each month (tenure or term)

� Line of credit - draw funds as needed; the unused portion grows over time

� Combination - any mix of the above

The line of credit option is particularly powerful for retirement planning. Unlike a HELOC that can be frozen by a lender, the HECM line of credit cannot be reduced or cancelled - and the available credit grows over time at the same rate as the interest on the loan.

What Happens When the Loan Comes Due?

The reverse mortgage becomes due when the last borrower permanently leaves the home. At that point, you or your heirs have several options:

� Sell the home and use the proceeds to repay the loan, keeping any remaining equity

� Refinance the loan into a traditional mortgage to keep the home

� Pay off the balance with other assets

FHA HECM loans are non-recourse, meaning you or your heirs will never owe more than the home's appraised value at the time of sale - even if the loan balance has grown beyond that amount. The FHA mortgage insurance covers the difference.

According to HUD's HECM program guidance, the financial-assessment and counseling framework is specifically designed to keep borrowers in sustainable loans and reduce avoidable defaults.

Is a Reverse Mortgage the Same as Selling Your Home?

No. A reverse mortgage is a loan secured by your home. You retain ownership, remain on the title, and continue to live in the home. The lender does not take ownership of your house.

Frequently Asked Questions

Is a reverse mortgage a scam?

No. The HECM program is federally regulated by HUD and FHA, requires independent counseling before closing, and includes built-in consumer protections. Proprietary products in California are regulated by state law. That said, it is important to work with a licensed specialist who explains all terms clearly.

Can I get a reverse mortgage if I still have a mortgage?

Yes. If you qualify, the reverse mortgage proceeds first pay off your existing mortgage balance. Many California homeowners use this to eliminate a $1,500-$3,000 monthly payment entirely.

What is the minimum age for a reverse mortgage in California?

Age 62 for the HECM program. Age 55 for proprietary reverse mortgage products - a meaningful advantage for early retirees in California.

This material is not from HUD or FHA and has not been approved by HUD or any government agency. All reverse mortgage loans are subject to credit and property approval. Terms and conditions may apply. This content is for educational purposes only and is not financial, tax, or legal advice.