When reverse mortgages come up, reactions tend to split into two camps: those who believe you can generate retirement cash from your home, and those who think you're just handing your house over to the bank.

Both perspectives have some truth, so today I want to carefully break down the numbers and regulations.

The reverse mortgage referred to in the U.S. mostly means the HECM, Home Equity Conversion Mortgage, which is insured by the FHA.

Instead of making monthly payments, you receive cash from the equity built up in your home, while interest and insurance premiums continue to accumulate on the loan balance. The settlement occurs when the house is sold or when the last borrower leaves the home.

This means you need to accept that over time, your debt will increase and your share of the home will decrease. If you overlook this premise, you might be shocked by the balance later on.

The eligibility criteria set by HUD are simpler than you might think. You must be at least 62 years old, have either paid off your home or paid a significant portion of it, and you must live in that home.

You cannot have any federal government debt in default, and you must consult with a HUD-approved counselor. Additionally, lenders cannot charge application fees or appraisal fees before the counseling is completed.

In Vermont, there's an additional requirement where lenders must guide you to receive counseling from a HUD-approved agency before applying for a loan.

Interestingly, there was a year when the list of counselors from the Vermont Department of Financial Regulation showed no HECM counselors within the state. I thought it was a typo when I first saw it.

As a result, many people often end up consulting with counselors from Massachusetts or New Hampshire, so be sure to check the latest list at dfr.vermont.gov.

The HECM limit for 2026 is a nationwide common limit of $1,249,125. This is an increase from last year's limit of $1,209,750 and applies to loans with case numbers assigned after January 1.

It's important not to confuse this number with the amount of money you can receive; it serves as a baseline for calculations. Even if your home value exceeds this amount, it will not be calculated above the limit.

The actual limit is determined by taking the lower of the appraised value and this limit, then multiplying it by a ratio based on age and interest rates. The older you are and the lower the interest rate, the higher the percentage you can receive.

When it comes to costs, you might be surprised at first glance.

The upfront mortgage insurance premium is 2% of the lower of the appraised value or the limit. For a $500,000 home, that means an insurance premium of $10,000.

Additionally, an annual insurance premium of 0.5% of the loan balance is added each year, which also accumulates interest. This compounding cost can lead to significant differences over time.

Lender fees can go up to $6,000, and there are also separate costs for appraisal and title fees, among other standard closing costs.

So, if you think you might move within a few years, a reverse mortgage could end up being a losing choice since you won't have enough time to recoup the initial costs.

You can choose to receive funds as a lump sum, a fixed monthly amount, or a line of credit, or a combination of these options.

When I look at counseling data, I pay particular attention to the line of credit option. The unused line of credit grows over time, making it a good fit for emergency funds. It's convenient for unexpected large expenses like medical bills or roof repairs.

One of the most commonly overlooked aspects is the conditions under which the loan becomes due.

If you fail to pay property taxes, homeowners insurance, or HOA fees on time, the loan can become due immediately. Just because you don't have monthly payments doesn't mean the fixed costs associated with the home disappear.

In areas like Vermont, where property tax burdens consistently rise, this can be a significant variable. Even within the same county, tax bills can vary based on school budget voting results in different towns.

If you stay in a nursing facility for more than 12 consecutive months, the home is no longer considered your primary residence. This brings the loan repayment issue into reality.

If your spouse is not a co-borrower, you need to pay special attention to this aspect.

For cases after August 4, 2014, there is a provision that allows qualified non-borrowing spouses to continue living in the home, but the conditions are strict, so it's best to verify with documentation.

On the inheritance side, there's surprisingly reassuring news. HECM is a non-recourse loan, so if the debt exceeds the home value, your children won't be responsible for the difference.

If your children want to keep the home, they can settle for the lower of the balance or 95% of the appraised value.

Ultimately, the comparison is between reverse mortgages and downsizing. Moving to a smaller condo and pocketing the profit looks much cleaner in terms of costs. However, you also need to factor in moving costs, agent fees, and the burden of adjusting to a new neighborhood for a fair comparison.

On the other hand, if you have no intention of leaving that neighborhood and plan to live in that home for over 10 years, a reverse mortgage becomes a meaningful option.

If I were in your shoes, I would start by pulling the property tax trends for the last five years before consulting. The results can vary significantly based on personal circumstances, so be sure to check with a HUD-approved counselor and a tax professional.