A reverse mortgage charges interest, but because you make no monthly payment, the interest is added to what you owe every month instead of being paid. On a HECM, the federally insured reverse mortgage, you pick a fixed rate or an adjustable one, and that choice also decides how you can take the money. Two rates matter on every adjustable HECM. The note rate is what you are charged. The expected rate is what HUD's formula uses to decide how much you can borrow. This page explains both, the federal caps on how far an adjustable rate can move, and what to compare between lenders. We don't quote rates here, because they change daily and depend on the lender and on your situation.
Fixed or adjustable: the choice that also picks your payout
The Consumer Financial Protection Bureau lays out three ways to take HECM money, and the rate type comes with each one. A lump sum comes with a fixed rate. A line of credit and monthly payments come with an adjustable rate.
A fixed rate sounds safer, and for some borrowers it is the right call, though it limits how you get the money. Federal rules say a fixed-rate HECM pays out once, at closing. In HUD's regulation, after closing "no further funds may be made available for the borrower to draw against." HUD also caps how much can go out at closing and in the first 12 months (the Initial Disbursement Limit), so a fixed-rate borrower can be left with part of their borrowing power permanently out of reach. The CFPB adds that a lump sum costs more than the other options, because you pay interest and fees on the whole amount from the first day, and that it carries more risk for younger borrowers, who may outlive the money.
An adjustable rate costs you interest only on what you actually draw. If you take a line of credit and leave most of it alone, most of it is never charged interest at all.
How an adjustable HECM rate is built
Your note rate on an adjustable HECM is an index plus a margin. The index is a published market rate the lender doesn't control. The margin is the lender's piece, set when you lock or get your loan commitment, and later adjustments follow the index while the margin stays put. Lenders set their own margins, so it is one of the first numbers to compare.
HUD's regulation, 24 CFR 206.21, sets which indexes a HECM can use and how far the rate can move:
- An annually adjusting HECM uses the one-year Treasury constant maturity rate (CMT) or the 30-day average SOFR. The first change comes 12 to 18 months after closing. Each change is capped at 2 percentage points up or down, a bigger index move can't be carried over to the next year, and the rate can never end up more than 5 points above or below where it started.
- A monthly adjusting HECM uses the one-year CMT, the one-month CMT, or a HUD-approved SOFR index. It has no yearly cap. Its only limit is a lifetime cap of 10 points from the starting rate, which HUD can change by notice. A lender may offer the monthly version only if it also offers the annual one.
A monthly adjusting loan can track the market closely in both directions, which is fine when rates fall and expensive when they climb. Ask any lender which version they are quoting.
The same regulation requires the lender to explain the adjustable features in writing when you apply, including when the rate can rise, the limits on increases, and what an increase does to your loan. Before every adjustment, the lender has to send a notice at least 25 days ahead showing the current index, the date it was published, and your new rate. If your HECM dates from the years when LIBOR was the index, HUD required it to move to a SOFR-based replacement index, with notice sent to you.
The expected rate: the number that sizes your loan
The expected rate drives the most important number in the transaction. HUD defines the expected average mortgage interest rate as the rate used to calculate your principal limit, which is the most you can borrow. The formula takes three inputs: the age of the youngest borrower (or eligible non-borrowing spouse), the expected rate, and the home value up to HUD's limit.
On a fixed-rate HECM, the expected rate is simply your note rate. On an adjustable HECM, it is the lender's margin plus the 10-year Treasury CMT (or a HUD-approved SOFR index). That is a longer-term rate than the one-year or one-month index that sets what you are charged, so the two numbers usually differ.
In the CFPB's words, "loans with older borrowers, higher-priced homes, and lower interest rates will have higher principal limits." A lower expected rate means more money available to you, and a higher one means less. Because the margin feeds into the expected rate, a lender's margin affects both what you pay and what you can borrow. HUD's rules let you and the lender lock the expected rate and the margin together before closing.
How interest grows the balance, and the credit line
With no monthly payment, interest compounds. The CFPB says ongoing costs are added to your loan balance each month, and on a HECM those costs include the interest plus FHA's annual mortgage insurance premium of 0.5% of the outstanding balance. Next month's interest is charged on a balance that already includes last month's. That is why a reverse mortgage balance rises over time even if you never take another dollar.
The same math works in your favor on an unused line of credit. Under 24 CFR 206.3, the principal limit grows every month by one-twelfth of your current note rate plus one-twelfth of the annual mortgage insurance rate. Section 206.25 says the line of credit "increases at the same rate as the total principal limit increases." So when rates go up, your balance grows faster, but so does the credit you haven't touched. The growth is extra borrowing room. It is not interest paid to you, and anything you later draw starts accruing interest the day you take it.
A fixed-rate HECM gets none of this benefit. Its principal limit keeps growing on paper, but you can't draw any more after closing.
The balance can grow past the home's value, and that is where the FHA insurance comes in. A HECM is non-recourse. When the loan comes due, neither you nor your heirs owe more than the home is worth. If the balance is larger, HUD lets heirs settle the loan by selling for at least 95% of the current appraised value. More on that is in what happens to the house when you die.
Comparing offers: margin, fees, and the TALC table
Two offers with the same starting rate can cost very different amounts over time, so look past the headline number. Ask each lender for the margin, the index, and whether the loan adjusts monthly or yearly, and line up the fees next to those answers. The CFPB lists the origination fee at $6,000 or less, paid to the lender, so that line is a ceiling and lenders can charge less.
Federal law also gives you a tool that ordinary mortgages don't have. Under Regulation Z (12 CFR 1026.33), a reverse mortgage lender has to give you a table of total annual loan cost (TALC) rates at least three business days before closing. The table projects the yearly cost of the loan, fees included, at three home appreciation rates (0%, 4%, and 8%) and over several time spans: two years, the youngest borrower's life expectancy, and 1.4 times that life expectancy. The two-year column shows how expensive the loan is if you end it early, which is when upfront fees weigh the most. Put two lenders' TALC tables side by side and you are comparing the whole cost of each loan.
California timing and Southern California home values
California adds a rule that affects rate shopping. Under Civil Code § 1923.2(k), a lender can't accept your final application or charge you any fee until seven days after your HUD-approved counseling session. A lender may still talk numbers with you during that week, but it can't charge you for anything, a rate lock included. Use the week to collect a second quote and the TALC tables. Our article on how a reverse mortgage works in California walks through the full sequence.
Home values change the math in our part of the state. HUD's 2026 HECM limit is $1,249,125 nationwide (Mortgagee Letter 2025-22). That number caps the home value the formula uses. It is not an amount anyone receives. For a regular conforming loan, county limits differ: in 2026, FHFA's limit is $1,249,125 in Orange and Los Angeles counties but $832,750 in Riverside and San Bernardino counties. The HECM cap is the same in all four counties, so a retiree in Corona and one in Huntington Beach whose homes are each worth more than $1,249,125 get the same value input, and the difference in what they can borrow comes from age and the expected rate.
If your home is worth more than that, you may also hear about private, or proprietary, reverse mortgages. HUD says the HECM is the only reverse mortgage the federal government insures, so the HUD rate caps above apply only to HECMs. A private loan's rate terms are whatever its note says, and you should read its adjustment section line by line. California's protections still apply: Civil Code § 1923 covers any nonrecourse reverse mortgage from a state- or federally licensed lender, so the seven-day wait and the no-fee rule reach private loans too. See how to qualify for a reverse mortgage for how HECM and proprietary products differ on eligibility.
Is reverse mortgage interest tax deductible?
Usually not. IRS Publication 936 (2025) treats the money you receive as a loan advance, which isn't taxable income. It also says interest accrued on a reverse mortgage is generally treated as interest on home equity debt and isn't deductible. Ask a tax professional about your own return, especially if your heirs or estate will be paying the loan off.
Where to see today's rates
Rates move daily, so a figure printed in an article goes stale fast. To see real numbers for your home and age, ask two or more lenders for a written quote showing the index, the margin, the expected rate, and the TALC table. A HUD-approved counselor, reachable through (800) 569-4287, can go over those papers with you without selling you anything. You can check any loan officer on NMLS Consumer Access: Choice Home Mortgage is NMLS #2629064, and Esther Buede is NMLS #2003644.
If a reverse mortgage isn't the right fit, a home equity line of credit usually has monthly payments, so the interest is paid as you go instead of compounding onto the balance. The HELOC page and our side-by-side comparison of the two loans cover that option in more detail.
Talk it over with Esther
Owner Esther Buede at Choice Home Mortgage will go through a reverse mortgage quote with you line by line: the margin, the expected rate, whether a fixed or adjustable rate fits how you plan to use the money, and what the TALC table says. She'll also tell you if a reverse mortgage isn't the right fit. You can start with the reverse mortgage page, try the reverse mortgage calculator, or call (949) 522-7310.
Choice Home Mortgage (NMLS #2629064, CA DRE #01822046) is an Equal Housing Opportunity lender. This article is for general educational purposes and is not a commitment to lend or financial advice; loan approval and terms are subject to lender requirements and your individual circumstances.
