When a homeowner can’t meet the terms of their mortgage agreement, they risk falling into default. That means the borrower has failed to uphold their contract, and the lender can begin the foreclosure process. Whether you’re dealing with a forward mortgage or a reverse mortgage, default is a serious situation that can lead to losing your home.
But reverse mortgages work very differently than traditional mortgage loans. Understanding the key differences can help borrowers stay protected, avoid surprises, and take the right steps if trouble arises.
A forward mortgage is the traditional home loan used when someone buys a house. The borrower receives a lump sum of money from the mortgage lender and agrees to repay the loan through regular mortgage payments. Each monthly mortgage payment includes the loan principal, interest, and amounts set aside for property taxes and homeowners insurance.
Forward mortgages are often 15 or 30 years in length. If a homeowner stops making payments, the mortgage servicer may send late notices, assess fees, and eventually begin foreclosure. Depending on state law, this process can move quickly or offer the borrower time to resolve the situation.
A reverse mortgage is designed for older homeowners, usually age 62 or above, who want to borrow against their home equity without making monthly payments. Instead of paying the bank each month, the homeowner receives money from the lender, either as a lump sum payment, monthly payments, or a line of credit.
These loans are typically part of the Home Equity Conversion Mortgage (HECM) program, overseen by the Department of Housing and Urban Development. The loan is repaid when the borrower moves out, sells the home, or passes away.
There are no monthly payments due during the life of the loan, but reverse mortgages can still go into default.
A reverse mortgage default happens when the borrower fails to meet one or more key obligations. These may include:
Because reverse mortgage borrowers don’t make monthly payments, defaults typically come from missed tax or insurance bills, or from occupancy issues.
According to HUD, borrowers must continue living in the home as their primary residence and keep all obligations current. If these conditions aren’t met, the lender can file a notice of default and begin the process of calling the loan due.
In the past, if only one spouse signed the loan, the reverse mortgage would become due when that person died, even if the surviving spouse still lived in the home. This created serious hardship.
After a court ruling challenged that practice, HUD changed the rules. Now, a non-borrowing spouse may be eligible to stay in the home after the borrower’s death if certain conditions are met. Their age is also factored into how much money can be borrowed upfront.
A Congressional Research Service report outlines the history of these policy changes and how reverse mortgage regulations have evolved to protect surviving spouses.
Let’s look at some of the biggest differences between reverse mortgage defaults and forward mortgage defaults:
Even without monthly payments, borrowers can still lose their homes to foreclosure under a reverse mortgage. One FDIC study found that many defaults were linked to borrowers using a large percentage of their loan upfront, poor credit history, or a lack of available credit.
The study also noted that setting aside part of the loan for future taxes and insurance could reduce default risk, an idea similar to escrow accounts in traditional mortgages.
Data from the Urban Institute suggests that forward-style repayment stress—having to make regular payments—creates more consistent risk of default than the unique stressors in reverse mortgages.
Still, reverse mortgages come with their own challenges. Because many borrowers are older and on fixed incomes, even small increases in property taxes or insurance costs can create financial trouble. And since most defaults don’t occur until later in the loan term, problems can sneak up quietly.
The Urban Institute finds that the forward-style repayment stress—making monthly mortgage payments from limited income—leads to more defaults than the tax and insurance stress found in reverse mortgages.
In other words, the monthly payment burden in forward loans creates earlier and more common risk than the delayed stress of unpaid property charges in HECMs.
Many reverse mortgage defaults stem from issues beyond a borrower’s control. According to the FDIC study on HECM borrowers, key risk factors include:
If any of these apply to a borrower, the lender might require a “set-aside” at the time of closing. This means some loan proceeds must be earmarked to cover future insurance and taxes—a strategy that reduces the chance of default.
Default rate trends confirm that early risk signals like these matter more than borrower age or loan term alone.
If a borrower fails to meet loan obligations, the mortgage servicer sends a notice of default. This starts the foreclosure process, though timelines vary by state law and urban development rules.
The borrower (or heirs) may:
Lenders must follow HUD’s protocol for resolving HECM defaults, which can include requesting a delay, granting an extension, or establishing a repayment plan for overdue taxes and insurance. If resolution fails, the lender may move to foreclose.
A reverse mortgage becomes due and payable when the borrower dies, sells the home, or permanently leaves it. At that point:
Repayment does not require the lender’s profit to be repaid, just the money owed, typically up to the appraised value.
The HUD.gov HECM page outlines this repayment process and restrictions for non-borrowing spouses.
To be eligible, you must be 62 or older, own your home outright (or have low remaining balance), and occupy it as your primary residence. Learn more about the pros and cons of reverse mortgages before applying.
Yes. If you miss property tax payments or allow homeowners insurance to lapse, you may be in default. This could lead to foreclosure, even though you’re not making a regular mortgage payment.
The mortgage lender provides the loan. The servicer handles day-to-day account management, like sending statements, collecting payments, or issuing notices of default.
If you’re unable to meet the terms of your mortgage contract, your lender is required to follow federal procedures before taking further action. For example, they must provide written notice, outline your rights, and give you a chance to contact a housing counselor or respond. Many borrowers don’t realize they can exchange paperwork, ask for a repayment plan, or challenge errors in the interest rate or loan balance. The key is acting quickly, especially if you’re struggling to afford ongoing costs like taxes or insurance. You can also read Let’s Talk About Reverse Mortgages for an introduction to the topic.
If you’re concerned about your ability to meet your reverse mortgage obligations, help is available. You may qualify for government programs to bring your account current. You may also have options to restructure the loan or work out a repayment plan with your lender.
Avoiding default starts with early action. Don’t wait for a notice or legal demand; reach out to your servicer, consult a HUD counselor, or explore alternatives through your local housing agency.
Need expert help right now?
Visit Credit.org’s Reverse Mortgage Default Counseling service to speak with a certified housing counselor. We’re here to help you understand your financial situation, protect your home, and explore all of your options with clarity and confidence.
