Reverse Mortgages in California: Pros, Cons & Requirements

You're 62 or older. You own your California home. You need cash for retirement.

A reverse mortgage lets you convert home equity into cash without monthly payments.

But reverse mortgages are complex, expensive, and controversial. They're the right move for some people and a terrible idea for others.

I'm Bill McCoy, a California mortgage broker (CA DRE #01212512) with 15 years of experience. I'll give you the honest truth about reverse mortgages — what they do, what they cost, and when they make sense.

What Is a Reverse Mortgage?

A reverse mortgage is a loan for homeowners age 62 or older that allows you to access home equity without selling or making monthly mortgage payments.

Instead of paying the lender, the lender pays you (via lump sum, monthly payments, or line of credit).

The loan is repaid when you:

• Sell the home
• Move out permanently
• Pass away

How a Reverse Mortgage Works

Traditional Mortgage

• You borrow money to buy a home
• You make monthly payments (principal + interest)
• Your equity increases over time
• You owe less each month

Reverse Mortgage

• You borrow against your home equity
• The lender pays you (or you draw from a line of credit)
• No monthly payments required
• Interest accrues, so your debt increases over time
• You owe more each month (until the loan is repaid)

Key point: You still own the home. Your name stays on the title. You're responsible for property taxes, insurance, and maintenance.

Types of Reverse Mortgages

1. HECM (Home Equity Conversion Mortgage)

What it is: FHA-insured reverse mortgage. The most common type (90%+ of reverse mortgages).

Loan limits (2026):

• Standard California counties: $832,750
• High-cost counties (LA, SF, OC, SD, etc.): $1,249,125

Protections:

• You can never owe more than the home's value (non-recourse loan)
• Mandatory counseling required before closing
• Spouse protections (even if not on the loan)

2. Proprietary Reverse Mortgages (Jumbo Reverse)

What it is: Private reverse mortgages for high-value homes.

For homes worth: $1M to $4M+

Pros:

• Higher loan amounts than HECM
• Fewer restrictions

Cons:

• Higher fees
• Less regulation
• Fewer consumer protections

3. Single-Purpose Reverse Mortgages

What it is: Offered by some state/local governments and nonprofits.

Use: Must be for a specific purpose (property taxes, home repairs, etc.).

Pros:

• Lowest cost option
• Simpler terms

Cons:

• Limited availability
• Restricted use

Most California seniors use HECM. I'll focus on that.

HECM Requirements

Age

Primary borrower: 62 or older

If married: Younger spouse can be under 62 (as a "non-borrowing spouse"), but it reduces your loan amount.

Ownership

You must own the home outright or have significant equity.

If you have a mortgage, the reverse mortgage will pay it off (reducing your available funds).

Property Type

Eligible:

• Single-family homes
• 2-4 unit properties (if you live in one unit)
• FHA-approved condos
• Manufactured homes (if built after June 1976 and on permanent foundation)

Not eligible:

• Co-ops
• Mobile homes on leased land
• Investment properties

Occupancy

The home must be your primary residence.

If you move out for more than 12 consecutive months (nursing home, moving in with family), the loan becomes due.

Financial Assessment

Lenders review:

• Credit history (not a strict credit score requirement, but they check for major delinquencies)
• Income and assets (to ensure you can afford property taxes, insurance, HOA fees)

If you fail financial assessment: Lender may set aside part of your loan proceeds in an escrow account to cover taxes/insurance.

Property Condition

The home must meet FHA minimum property standards (safe, sound, sanitary).

If repairs are needed, they must be completed using reverse mortgage proceeds (through a "repair set-aside").

Counseling (Mandatory)

You must complete HUD-approved reverse mortgage counseling (typically $125-$200, 90 minutes).

The counselor explains:

• How reverse mortgages work
• Costs and obligations
• Alternatives to consider

How Much Can You Borrow?

The amount depends on:

1. Your Age

Older borrowers can access more equity.

Approximate percentages:

• Age 62: 40-50% of home value
• Age 72: 50-60%
• Age 82: 60-70%

2. Home Value

Up to the HECM limit ($832,750 in standard counties, $1,249,125 in high-cost).

3. Interest Rates

Lower rates = higher loan amounts.

4. Existing Liens

If you have a mortgage or HELOC, it must be paid off from reverse mortgage proceeds (reducing cash available to you).

Example Calculation

Scenario:

• Home value: $700,000 (in LA County)
• Age: 70
• Current mortgage: $150,000
• Interest rate: 6.5%

Estimated loan amount: ~$350,000 (50% of value)

• Minus current mortgage payoff: $150,000
• Minus closing costs: ~$20,000
• Cash available to you: ~$180,000

How You Receive the Money

You have 5 payout options:

1. Lump Sum

Get all available funds upfront (minus costs).

Fixed interest rate. Good if you need cash now for a specific purpose (pay off debt, fund a large expense).

2. Monthly Payments (Tenure)

Receive equal monthly payments for as long as you live in the home.

Variable interest rate. Good for supplementing retirement income.

3. Monthly Payments (Term)

Receive equal monthly payments for a set period (e.g., 10 years).

Variable interest rate. Good if you need income for a specific timeframe.

4. Line of Credit

Draw funds as needed, like a HELOC.

Variable interest rate. Unused credit grows over time (unique feature).

Most flexible option.

5. Combination

Mix monthly payments + line of credit.

Example: Take $50,000 upfront, keep $100,000 as a line of credit for emergencies.

Broker's Tip: The line of credit option is powerful because the unused portion grows at the same rate as your loan's interest rate. If rates are 6%, your available credit grows at 6% per year (compounding). This is unique to HECMs.

Costs and Fees

Reverse mortgages are expensive. Here's what you'll pay:

1. Origination Fee

Up to $6,000 or 2% of the first $200K + 1% of the amount above $200K (whichever is less).

Example:

• Home value: $700,000
• Max origination: $6,000 (hits the cap)

2. FHA Mortgage Insurance Premium (MIP)

Upfront: 2% of home value

Example:

• Home value: $700,000
• Upfront MIP: $14,000

Ongoing: 0.5% of loan balance annually (added to your loan balance, not paid monthly)

3. Third-Party Closing Costs

• Appraisal: $500-$800
• Title insurance: $2,000-$4,000
• Recording fees: $200-$400
• Credit report: $50-$100
• Flood certification: $20
• Counseling fee: $125-$200

Total third-party costs: $3,000-$6,000

4. Servicing Fee (Optional)

Some lenders charge a monthly servicing fee ($30-$35/month), added to your loan balance.

Total Upfront Costs

On a $700,000 home:

• Origination: $6,000
• MIP: $14,000
• Third-party costs: $4,000
• Total: ~$24,000

These costs are rolled into your loan (you don't pay out of pocket), but they reduce your available funds.

Interest Rates

Fixed-rate HECM: 6.0-7.0% (as of 2026)

Variable-rate HECM: 5.5-6.5% (adjusts monthly or annually)

Variable rates are typically lower, and they're the only option for line of credit or monthly payments.

Pros of Reverse Mortgages

1. No Monthly Payments

You don't make mortgage payments. This frees up cash flow.

2. Stay in Your Home

You own the home. You can live there as long as you want (as long as you pay taxes, insurance, and maintain it).

3. Non-Recourse Loan

If your loan balance exceeds your home's value when it's sold, you (or your heirs) are not responsible for the shortfall. FHA covers it.

4. Tax-Free Funds

Money from a reverse mortgage is a loan, not income. It's not taxable.

5. Flexible Payout Options

Lump sum, monthly payments, or line of credit — you choose.

6. Line of Credit Growth

Unused credit grows over time (unique to HECMs).

7. Social Security and Medicare Unaffected

Reverse mortgage proceeds don't count as income and don't affect Social Security or Medicare benefits.

Exception: Medicaid and SSI can be affected if you have large cash balances from the reverse mortgage.

Cons of Reverse Mortgages

1. High Costs

Origination, MIP, and closing costs eat into your available funds.

2. Accruing Interest

Interest is added to your loan balance. Over time, you owe more and more.

Example:

• Start with $200,000 loan
• 6% interest
• After 10 years: $358,000 owed
• After 20 years: $641,000 owed

If your home doesn't appreciate at the same rate, your heirs inherit less (or nothing).

3. Reduced Inheritance

Your heirs inherit the home minus the loan balance. If the loan exceeds the home's value, they inherit nothing (though they also owe nothing).

4. You Must Maintain the Home

You're responsible for:

• Property taxes
• Homeowners insurance
• HOA fees
• Maintenance and repairs

If you fail to pay these, the loan can be called due.

5. Risk of Foreclosure

If you don't pay taxes, insurance, or maintain the home, the lender can foreclose.

6. Complexity

Reverse mortgages are complicated. Many borrowers (and their heirs) don't fully understand the terms.

7. Spouse Risks

If the younger spouse is not on the loan and the older spouse dies, the loan becomes due. The younger spouse must pay it off or sell the home.

2015 rule change: Non-borrowing spouses can stay in the home, but they can't access additional funds.

Broker's Tip: If you're married and one spouse is under 62, consider waiting until both are 62+ to maximize your loan amount and protect the younger spouse.

Alternatives to Reverse Mortgages

Before getting a reverse mortgage, consider:

1. Downsize

Sell your home, buy a smaller/cheaper one, and pocket the difference.

Pros: Lower expenses, no debt
Cons: Emotional attachment, moving costs, transaction fees

2. Home Equity Loan or HELOC

Borrow against your equity.

Pros: Lower costs than reverse mortgage
Cons: You make monthly payments

Compare HELOC vs cash-out refinance

3. Cash-Out Refinance

Refinance your mortgage and pull cash out.

Pros: Lower rates than reverse mortgages
Cons: You make monthly payments

Learn about cash-out refinancing

4. Sell and Rent

Sell your home and rent instead.

Pros: Access all equity, no maintenance costs
Cons: No home ownership, rent payments

5. Family Loan

Borrow from adult children or family members.

Pros: Low or no interest
Cons: Family dynamics, not always feasible

6. Medicaid or State Programs

Some California programs help seniors with property taxes, home repairs, or living expenses.

Who Should Consider a Reverse Mortgage?

Good candidates:

• Age 70+
• Plan to stay in the home for 10+ years
• Need cash to supplement retirement income
• Have significant equity (50%+)
• No desire to leave the home to heirs
• Can afford property taxes, insurance, and maintenance
• Have exhausted other options

Poor candidates:

• Under 65
• Plan to move within 5 years
• Want to leave the home to heirs
• Can't afford property taxes/insurance
• Have better alternatives (downsizing, HELOC, family support)

Real-World Example: Margaret's Reverse Mortgage

Margaret's situation:

• Age: 75
• Home value: $850,000 (Ventura County)
• No mortgage
• Social Security: $2,400/month
• Expenses: $3,800/month
• Savings: $15,000

Her problem: She's spending down her savings. In 12 months, she'll be broke.

Option 1: Sell and downsize

• Could net $600K+ after selling
• Doesn't want to leave her home of 40 years

Option 2: Reverse mortgage

• Eligible for ~$450,000 (52% of home value at age 75)
• Takes $50,000 lump sum + $1,400/month for life
• New total income: $3,800/month (matches expenses)
• Stays in her home

Margaret chose the reverse mortgage. She's now financially stable and can age in place.

The tradeoff: Her heirs will inherit less. But Margaret prioritized her comfort and financial security.

FAQ

Q: Do I lose ownership of my home with a reverse mortgage?
A: No. You own the home and stay on the title.

Q: Can the lender take my home?
A: Only if you fail to pay property taxes, insurance, or maintain the home. Or if you move out permanently.

Q: What happens when I die?
A: Your heirs can pay off the loan (keep the home), sell the home (pay off the loan from proceeds), or walk away (lender forecloses and sells it).

Q: Can I ever owe more than my home is worth?
A: No. HECMs are non-recourse. You (or your heirs) never owe more than the home's value.

Q: Can I pay off a reverse mortgage early?
A: Yes, anytime, with no prepayment penalty.

Q: Can I refinance a reverse mortgage?
A: Yes, if your home has appreciated significantly or rates have dropped. But you'll pay closing costs again.

Q: What if I need to move to a nursing home?
A: If you're gone for more than 12 consecutive months, the loan becomes due.

Q: Can I get a reverse mortgage if I have bad credit?
A: Possibly. HECM lenders do a financial assessment, but credit score isn't a major factor.

Is a Reverse Mortgage Right for You?

Talk to an expert who can review your situation and explain all your options.

Get Your Free Consultation

Better Offers Inc | CA DRE #01212512
Serving California seniors since 2011