Unlock Your Home Equity in Retirement

A reverse mortgage is a specialized loan that allows homeowners aged 62 and older to convert a portion of their home equity into cash without selling the home or making monthly mortgage payments. Instead of you paying the lender each month, the lender pays you — or provides a line of credit you can draw from as needed. The loan balance grows over time and is repaid when you sell the home, move out permanently, or pass away. At Good Life Lending, Selvin Herrera helps California seniors understand whether a reverse mortgage aligns with their retirement goals.

The most common reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration. HECMs are available through FHA-approved lenders and are subject to FHA lending limits, which in 2024 cap at $1,149,825 regardless of your home value. For homeowners with properties exceeding this limit, proprietary (jumbo) reverse mortgages from private lenders may provide access to additional equity.

The amount you can borrow depends on several factors: your age (older borrowers qualify for more), current interest rates (lower rates mean higher proceeds), and your home appraised value. A 72-year-old California homeowner with a home appraised at $800,000 and no existing mortgage might access $350,000 to $450,000 through a HECM, depending on current rate conditions. These funds are tax-free because they represent a loan advance, not income.

Payment options provide significant flexibility. You can receive funds as a lump sum, a monthly payment for a fixed term or for as long as you live in the home, a line of credit that grows over time, or any combination. The growing line of credit feature is particularly valuable — unused funds increase at a rate tied to the interest rate, effectively giving you access to more money over time even if your home value does not increase.

California homeowners must complete HUD-approved reverse mortgage counseling before applying. This independent counseling session, which can be done by phone, ensures you fully understand the loan terms, costs, alternatives, and obligations. You must continue to pay property taxes, homeowners insurance, and maintain the property in good condition. Failure to meet these obligations can trigger default even though there are no monthly mortgage payments.

Reverse mortgages in California carry specific costs including an origination fee (up to $6,000 for HECMs), an initial mortgage insurance premium of 2 percent of the home value, ongoing annual mortgage insurance of 0.5 percent, and standard closing costs. These fees can be financed into the loan so there is typically no out-of-pocket cost, though they do reduce the net proceeds available to you.

One of the most common concerns about reverse mortgages is the impact on heirs. When the last borrower leaves the home, the loan becomes due. Heirs can choose to repay the loan and keep the home, sell the home and keep any remaining equity, or walk away with no personal liability even if the loan balance exceeds the home value. This last point is the FHA non-recourse guarantee — your heirs can never owe more than the home is worth.

Reverse mortgages are not right for everyone. They work best for seniors who plan to stay in their home long-term, need supplemental retirement income, want to eliminate an existing mortgage payment, or need funds for medical expenses or home modifications. They are less suitable for homeowners who may move soon or who want to leave the maximum possible inheritance. Selvin Herrera provides honest, thorough analysis so you can make the best decision for your family.