What is a reverse mortgage and how does it work in Pennsylvania?

A reverse mortgage lets homeowners 62 and older turn home equity into cash without monthly mortgage payments, with the loan repaid when the home is sold or the owner permanently leaves. Instead of making payments to the lender, the lender makes payments to you, drawn from your equity. The loan balance grows over time as interest accrues.

In Pennsylvania, the most common reverse mortgage is the federally insured Home Equity Conversion Mortgage, or HECM, which requires counseling designed to make sure borrowers understand the product before committing.

Borrowers must be at least 62, own the home outright or have a small remaining balance, and live in the home as their primary residence. The home must meet program property standards, and a financial assessment evaluates the borrower's ability to keep paying taxes and insurance, which must stay current or the loan can become due.

Counseling with a HUD-approved counselor is required before proceeding. It is a genuine protection, ensuring you understand the costs, the obligations, and the alternatives before you commit.

The money can be received as a lump sum, monthly payments, a line of credit, or a combination, depending on the loan type and your choice. No monthly mortgage payment is required, but interest accrues on the balance and fees reduce the equity available. The loan is repaid from the sale of the home when you move out permanently, sell, or pass away.

If the home sells for less than the loan balance in certain situations, the federal insurance may cover the shortfall. Heirs should understand their options for the home after the borrower passes.

Reverse mortgages carry substantial upfront costs, including origination fees, mortgage insurance, and closing costs, so they are not a cheap source of cash. The balance grows over time, reducing the equity left for you or your heirs. Borrowers must keep up with property taxes and insurance, and the home must be maintained.

Before choosing a reverse mortgage, compare it against other options: selling and downsizing, a home equity loan or line of credit, or assistance programs. For many seniors, the right answer is not a reverse mortgage at all.