Reverse mortgage vs downsizing: how a HECM compares with selling in Florida

How a reverse mortgage works: the HECM basics

Most reverse mortgages today are Home Equity Conversion Mortgages, or HECMs, insured by the Federal Housing Administration. According to the Consumer Financial Protection Bureau, a reverse mortgage is a loan only for homeowners 62 and older. You borrow against your home's equity, you keep the title, and you do not make monthly principal-and-interest payments. Instead, interest and fees are added to the balance each month, so the balance grows.

• The home must be your main residence. The loan becomes due when the last borrower, co-borrower or eligible spouse sells, moves out or dies.
• You still carry the home. You must keep paying property taxes and homeowners insurance and keep the home in good repair, or you could face foreclosure.
• Equity shrinks over time. The CFPB calls it "not free money": the more you draw, and the longer the loan runs, the less equity remains.
• Payout choices. A line of credit, monthly payments, a single lump sum or a mix. The CFPB notes that a line of credit charges interest only on what you use, and that borrowing only what you need keeps costs lower.
• Non-recourse. Neither you nor your heirs will have to pay back more than the home is worth, according to the CFPB.

Sources: CFPB, What is a reverse mortgage?; CFPB, Considering a reverse mortgage?.

The 2026 FHA HECM limit, and what it does and does not mean

HUD sets a nationwide cap, the maximum claim amount, each year. For FHA case numbers assigned on or after January 1, 2026, it is $1,249,125, up from $1,209,750 in 2025 (HUD Mortgagee Letter 2025-22, announced December 11, 2025). It is 150 percent of Freddie Mac's national conforming limit for 2026.

Two cautions. First, the cap is the maximum home value HUD counts toward the loan, not the amount you can borrow. A lender's calculation depends on the age of the youngest borrower, the expected interest rate and the home's appraised value, and the CFPB notes that an older borrower can generally borrow more. Second, the limit is reset for each calendar year, so a case number assigned in 2027 will use that year's figure.

Sources: HUD, 2026 loan limits announcement; HUD Mortgagee Letter 2025-22.

What a reverse mortgage costs

HUD's rules for HECMs set two mortgage insurance premiums that are separate from the lender's own charges. Under Mortgagee Letter 2017-12, the initial premium is 2 percent of the maximum claim amount, and the annual premium is 0.5 percent of the outstanding loan balance. The HECM program also involves an origination fee, closing costs, a servicing fee and interest, all of which vary by lender and loan and are added to the balance. Ask for the lender's written cost estimate and compare at least two.

The CFPB adds a caution that matters for downsizers: if a health issue or another event may cause you to move soon, a reverse mortgage is an expensive way to cover short-term cash needs. A loan taken out and repaid within a few years carries the same upfront costs as one that runs for twenty.

Sources: HUD Mortgagee Letter 2017-12; CFPB, Considering a reverse mortgage?.

HECM for Purchase: buying a smaller home with a reverse mortgage

The HECM for Purchase program lets a borrower 62 or older use a reverse mortgage to buy a home. The CFPB describes it this way: you need cash or equity from a prior home for a relatively large down payment, and the reverse mortgage finances the rest. HUD's rules require a monetary investment at closing that covers the difference between the loan's principal limit and the purchase price, plus loan fees not financed, minus any earnest deposit. The cash must come from your own assets or the sale of your home. You and any eligible spouse must occupy the home within 60 days of closing.

For a downsizer, the idea is to sell the larger house, put the proceeds toward a smaller home and finance the balance with a loan that has no required monthly mortgage payment. The same duties apply as with any HECM: taxes, insurance, upkeep and the balance that grows. It can fit a buyer who has equity but would rather not carry a traditional mortgage payment. It can be a poor fit if the extra cost of the HECM outweighs a conventional loan or a cash purchase.

Three practical points for Tampa buyers. The home must meet HUD's property standards, so ask the lender early whether a specific condo, townhome or villa qualifies; the type of building matters, as our guide to condo, townhome, villa or single-family explains. Insurance in this market is a large cost, covered in hurricane and flood insurance when downsizing. And because you must occupy the home quickly, plan your move date before you close.

Sources: CFPB, Considering a reverse mortgage?; 24 CFR Part 206 (HECM insurance).

What happens to a reverse mortgage when the owner dies or moves

The loan becomes due and payable when the last borrower dies, sells or moves out. The CFPB also lists moving into a care facility for more than 12 consecutive months as a trigger. An eligible non-borrowing spouse may be able to remain in the home if the requirements are met, which is a question to settle before the loan, not after. If you live with a partner, the CFPB says it usually makes sense to apply as co-borrowers, because anyone living in the home who is not a co-borrower or eligible spouse must move out or repay the loan.

• If heirs want to keep the home, they repay the full balance or 95 percent of the appraised value, whichever is less.
• If they sell, they keep any amount above the debt. If the sale price is below the balance, mortgage insurance covers the rest, as long as the sale is for at least 95 percent of the appraised value.
• Timing. After a due-and-payable notice, heirs usually have 30 days to buy, sell or turn the home over to the lender, with an extension, potentially up to six months, to complete a sale or arrange financing.

The CFPB advises owners who want to leave the home to their children to talk with them now about repayment options. Compare that with a sale and a smaller home, where your heirs inherit whatever equity you leave and none of the loan mechanics. See also helping a parent downsize for how these conversations tend to go.

Sources: CFPB, can my heirs keep or sell my home; CFPB, what happens when I die.

Counseling, scams and the Florida checks to do first

Before a HECM, federal rules require counseling from a HUD-approved counselor who is independent of the lender. The counselor must discuss alternatives, and HUD's list includes other housing, other reverse mortgages, HECM for Purchase, sale-leaseback financing, deferred payment loans and property tax deferral. You can find an approved counselor through the HUD housing counselor lookup. After closing, the CFPB says you have three days to cancel for any reason, without penalty, by notifying the lender in writing.

The CFPB also warns about scams aimed at older owners, including contractors and others who push a reverse mortgage to pay for work. Do not sign anything under pressure, and bring a family member or adviser to meetings.

Florida-specific questions to settle before you borrow:

• What do homeowners insurance, windstorm and any flood coverage cost on this home today, and what could they cost later?
• Do you owe an HOA, a condo association or a CDD assessment, and can the budget handle increases?
• Is the property tax picture changing? Our homestead portability guide covers what a move does to your assessed value, and the November 2026 ballot item on homestead exemptions is noted there.
• Does the Hillsborough County Tax Collector or Property Appraiser offer any deferral or senior programs that apply to you? Ask them directly.
• Who is on the deed, and who would need to leave if you died first?

The resources page lists the Senior Connection Center's Elder HelpLine and board-certified elder law attorneys, both useful for an unbiased second opinion.

Reverse mortgage vs downsizing: side by side

A hypothetical: three ways for one owner

All figures here are invented to show the arithmetic. A widowed owner, 74, has a paid-off house appraised at $400,000, wants to cut upkeep and needs more monthly cash flow.

• HECM on the current home. If the maximum claim amount is $400,000, the 2 percent initial premium is $8,000, before origination, closing and servicing costs and before any interest, all added to the balance. She stays, but the balance rises and the equity she could leave shrinks every year.
• Sell and buy smaller with cash. She sells for $400,000, pays selling costs and buys a $250,000 condo outright. Any leftover is invested or saved. Her condo carries HOA dues and insurance, which can rise, but there is no loan balance growing against it. See estimating net proceeds.
• HECM for Purchase. Suppose, for illustration only, a lender calculates a principal limit of $150,000 for a $250,000 condo. She brings the $100,000 difference plus any fees not financed, from the sale. She has no required monthly mortgage payment, but the loan still grows. Actual principal limits come from HUD's formulas and a lender's quote, not from this page.

The right choice depends on her health, her heirs, her other income and how long she expects to stay in the next home. A HUD-approved counselor can run the real numbers.

When downsizing outright is simpler

A reverse mortgage solves a cash-flow problem. It does not shrink the house, the yard or the maintenance. Selling and moving can be the simpler path when:

• The house itself is the problem, because of stairs, size or upkeep. See aging in place vs downsizing.
• You may move within a few years, because the upfront loan costs would be spread over a short time.
• You want to leave equity to heirs rather than a loan they must repay.
• You are under 62, or a co-owner is, and cannot qualify.
• The sale gain fits inside the federal exclusion. Many long-time owners owe no federal tax on the sale; check with the guide on capital gains on a home sale in Florida.

A reverse mortgage tends to be considered when an owner wants to stay put, has strong reasons to stay and can carry the taxes, insurance and upkeep for years. Whether it is worth the cost is a question for a counselor, not a brochure; our own is downsizing worth it guide sets out the money on the selling side. For the numbers behind a move, see costs and money and the step-by-step downsizing guide.

If you decide that selling is the better route, you can request an introduction. Introductions go to agents on the operating team at eXp Realty, so this is not a search of the whole market. Neither the site nor the agent is a lender, and nothing here is a recommendation of any loan.