This overview walks through how a reverse mortgage turns home equity into usable funds. Instead of you paying the lender each month, the loan balance grows over time as you receive funds and interest accrues. You can take the money as a lump sum, monthly payments, a line of credit, or a combination. Because it is a non-recourse loan, you or your heirs never owe more than the home's value when it is sold.
Video transcript
Hi, thank you for taking the time to watch this video. My name is Miguel Vazquez and I'm a reverse mortgage specialist. I've been doing reverse mortgages for 15 years now.
Today's topic is two of the things that are most misunderstood about reverse mortgages:
1. That the bank is going to keep my house.
2. That there will be nothing left to leave my children or heirs if I get a reverse mortgage.
These are the two misconceptions that come up over and over, so let's address them.
Misconception #1: The reverse mortgage wants to keep your home
A reverse mortgage is not out to keep your home. With a regular loan, you make monthly payments, and the lender who lent you the money has a lien on the title of your property. A reverse mortgage works exactly the same way: the lender is letting you borrow money and placing a lien on your property's title. That's it. It does not mean they own the property or want to take it away from you. A reverse mortgage is a loan, just like a 30-, 20-, or 15-year mortgage.
The one difference is that with a reverse mortgage you are not required to make monthly payments. On a traditional mortgage you'd pay interest plus a little principal every month; on a reverse mortgage you don't have to. You do still have to:
• Pay your property taxes
• Keep your homeowner's (fire) insurance in place
• Keep the property maintained to at least a minimum standard
When the home is eventually sold — by you, or by your heirs after you pass away — they sell it, use the proceeds to pay off the reverse mortgage balance, and keep whatever is left over. That's very similar to a regular mortgage. One advantage: when you leave the property to your children, an heir, or a friend, they don't have to make any payments on the loan. The reverse mortgage gives them six months to sell or refinance the property, and they can request an additional six-month extension — up to twelve months total — to sell the property or refinance into a new loan and pay off the reverse mortgage balance.
Misconception #2: There won't be anything left for my heirs
Let's walk through an example. Say your house is worth $600,000 and you owe $200,000 on it. You get into the reverse mortgage, and it lends you $200,000 to pay off your existing mortgage. Now you're in the program and you no longer have to make that monthly payment — say it was $1,500 a month. For someone retired and living on Social Security or a pension, not having to send in that $1,500 makes a big difference: more ability to pay the bills, less stress, and living more comfortably.
Now, this is not a free loan. The reverse mortgage charges interest on the amount you borrowed, and because you're not making payments, the balance grows over time. In this example, say after 10 years the balance has grown from $200,000 to about $300,000. That can sound scary — but remember you haven't made any payments in those 10 years. (And if you ever want to, you can make payments to slow the balance's growth — it's optional, with no prepayment penalty.)
Also remember that 10 years is a long time, and historically California homes have appreciated. So while your balance grew because you weren't making payments, the value of your property likely went up as well — say from $600,000 to around $700,000–$800,000. So you really haven't lost your equity.
If you pass away and leave the property to your children, and it's now worth, say, $700,000 with a $300,000 reverse mortgage balance: they sell it for fair market value, pay off the $300,000, and keep the remaining $400,000. So getting a reverse mortgage does not mean there's nothing left for your heirs.
This is a simplified example — home values go up and down here in California. But over the long run, the market has historically averaged roughly 4% appreciation, recovering from dips over time. (This is general historical context, not a prediction or a guarantee of future home values.)
One more point: if there's enough equity, you may also be able to borrow additional money. In the example, instead of just the $200,000 to pay off your existing mortgage, they might lend you $300,000 — $200,000 to pay off the old loan and $100,000 in cash you can use for bills or other needs. Again, it's not a free loan; interest is charged on the balance.
Why can't they lend the full value of the home? Because they aren't buying your house — they're lending against it. Generally, a reverse mortgage lends roughly 40%–60% of the property's value, depending on your age, the program, and current interest rates. So a higher home value means a higher potential loan amount, but never the full value.
I hope this cleared up those two misconceptions. If you have any questions, feel free to call or text me at 562-881-9811, or send me an email. For my reverse mortgage clients I also do house calls — I can come to your home, or your parents' home, to explain everything and answer your questions. I work weekends, evenings, and holidays. Thank you very much and have a good day.