Reverse mortgage in New York, or downsize: the trade-offs

Both choices answer the same question: how do you use the value tied up in your home? A reverse mortgage keeps the home and adds a loan. A sale ends ownership and frees the equity. People often want both outcomes, to stay and to have cash, and that is why the comparison is worth doing slowly and with outside help.

New York Downsizing is not a lender, a law firm or a brokerage, and nothing here is legal or financial advice. Introductions from this site go to agents on the operating team at eXp Realty, so they are not a search of the whole market. This guide gives no rates, fees or loan amounts, because those change and depend on the lender and the borrower.

How a reverse mortgage works in New York

The Consumer Financial Protection Bureau explains on its reverse mortgage page that, unlike a traditional mortgage, there are no monthly mortgage payments. The loan is repaid when the borrower no longer lives in the home. Interest and fees are added to the loan balance each month, so what you owe goes up over time. The CFPB's plain warning is that it is not free money.

Borrowers must keep three promises: pay property taxes and homeowners insurance, use the home as a principal residence and keep it in good condition. The CFPB notes that the loan may be called due sooner if those lapse. New York's own statute, Real Property Law section 280, covers reverse mortgage loans secured by a first mortgage on a one-to-four family home or condominium that is the borrower's residence. It requires disclosures, gives the borrower the right to prepay without penalty and requires counseling or a signed affidavit declining it before commitment.

The state's Department of Financial Services warns that compounded interest makes the outstanding amount grow at an increasingly faster rate.

The HECM: who qualifies and what it requires

A Home Equity Conversion Mortgage, or HECM, is the FHA's reverse mortgage program. HUD describes it on its HECM page as letting you withdraw a portion of your home's equity for maintenance, repairs or general living expenses. The CFPB calls it the most common type of reverse mortgage and lists the eligibility requirements:

• You are 62 or older.
• The home is your principal residence, where you live most of the year.
• You own it outright or have a low balance you can pay off at closing.
• You do not owe federal debt such as federal income taxes or student loans.
• The home meets property standards, and any repairs the lender requires are made first.
• You show that you can pay taxes, insurance and upkeep, or set aside part of the proceeds for them.

HUD says the amount available depends on the age of the youngest borrower or eligible non-borrowing spouse, the current interest rate and the lesser of the appraised value, the HECM FHA mortgage limit or the sales price. HUD also says HECM borrowers may stay in their homes indefinitely as long as property taxes and homeowner's insurance stay current. For the borrower's right to cancel, the CFPB says you have three business days after closing to cancel for any reason, without penalty.

Counseling is required

The CFPB says you must receive counseling from a HUD-approved agency to discuss eligibility, the financial implications and other alternatives. HUD points to its HECM counselor roster and the phone number (800) 569-4287. New York's DFS says a HECM borrower may not waive the counseling but can do it in person or by phone. Treat the session as a chance to ask whether you should do this at all.

Reverse mortgage on a co-op in New York

Co-op owners hold shares and a proprietary lease rather than a deed, which changes the product. RPL section 280 speaks of one-to-four family homes and condominiums, and the DFS has a separate page on a reverse cooperative apartment unit loan. DFS describes it as a proprietary reverse mortgage secured by the borrower's interest or shares in a cooperative housing entity, governed by New York State law rather than a federal program.

• Board approval. It is required before the loan proceeds, and boards typically set borrowing limits and may look at your ability to pay carrying charges.
• Counseling acknowledgment. A completed one is mandatory, documenting that a certified counselor explained the terms. It expires after six months.
• Default triggers. DFS lists sale or transfer of the unit, loss of primary residence status, vacancy over 12 consecutive months, death of all borrowers, breach, bankruptcy and failure to pay co-op charges such as maintenance.
• Right to cure. After written notice of default, the borrower has 45 days to fix it before foreclosure proceeds.

Whether a lender offers the loan, and whether your building will approve it, is a building-by-building question. Ask your managing agent for the board's policy and your attorney to read the documents. For how co-ops work generally, see buying a co-op or condo and how to sell a co-op in NYC.

HECM for Purchase: borrowing and moving at once

This is where the two choices meet. HUD says you can use a HECM to purchase a primary residence if you can use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs. In practice, a person sells a larger home and buys a smaller one with a reverse mortgage on the new place, rather than a traditional mortgage.

The trade-off is that the home you buy then carries the same obligations as any reverse mortgage, including taxes, insurance, upkeep and a balance that grows. It is also a purchase, so it carries the usual buyer costs and steps. Our buy first or sell first guide covers the timing, and the net proceeds calculator estimates what the sale of your current home might leave. Whether a particular building or home qualifies is a question for the lender.

Reverse mortgage vs downsizing: a side-by-side

Question	Reverse mortgage (HECM)	Downsizing
Where you live	You stay, as long as you meet the loan's conditions	You move to a smaller or simpler home
What happens to the equity	You borrow against it, and the balance grows	You sell and receive proceeds after costs
Monthly payments	No mortgage payment, but taxes, insurance and upkeep continue	New housing costs, which depend on what you buy or rent
Upkeep of the current home	Remains your job	Ends with the sale
Heirs	Must repay the loan to keep the home, or sell it	Receive whatever you hold after the sale
Main requirements	Age 62 or older, counseling, primary residence	Sale costs, transfer taxes and moving
Reversibility	Can be prepaid, but the balance is owed	A completed sale is hard to undo

Neither column is the safer one. The right comparison uses your numbers: your home's condition, your other income, how long you plan to stay and what you want to leave. The CFPB points out that your heirs will eventually have to pay back the loan, usually by selling the home.

On the downsizing side, see aging in place or downsizing for the staying option, where to downsize for places, and costs and money for what a sale and a move involve. Sale gains have their own rules, covered in the capital gains guide. If you are weighing property tax relief as another way to hold costs down, see senior property tax exemptions.

Spouses, co-owners and scams

If more than one person lives in the home, the paperwork matters. HUD says the amount available under a HECM depends on the age of the youngest borrower or an eligible non-borrowing spouse, and the CFPB's heirs guidance treats a co-borrower or eligible non-borrowing spouse differently from other heirs. Ask the lender, in writing, what happens to the household if one person dies first or moves to care, and have your attorney read the answer.

The CFPB also provides resources to protect older adults from reverse mortgage fraud, and DFS lists non-profit housing counselors on its site. Check any counselor against HUD's approved roster before you share financial details. The three-business-day right to cancel after closing, described by the CFPB, is worth knowing but is a backstop, not a plan.

Family matters here too. Adult children often learn about a reverse mortgage only after a death, when the due and payable notice arrives. Telling them now, and showing the counselor's summary, avoids a rushed decision during a hard month. The same applies if the home is a co-op, where the board's approval and limits were part of the original loan.

What heirs face

The CFPB says that when the last borrower dies, the loan generally has to be repaid, usually by selling the home. Without a co-borrower or an eligible non-borrowing spouse, heirs who want to keep the home must pay the full loan balance. They can sell and repay from proceeds. If the balance is more than the home is worth, they can satisfy it by selling for at least 95 percent of the appraised value, with mortgage insurance covering the rest.

After a due and payable notice, the CFPB says heirs have 30 days to buy, sell or turn the home over to the lender, and the period may be extended up to six months. Families should talk about this in advance, and an attorney can explain how it interacts with a will. See selling a parent's house for the estate side.

Questions to ask before deciding

1. Which counselor will I use, and have I asked them about alternatives to a reverse mortgage?
2. What is my plan if I need to move, for example for care?
3. How will I pay taxes, insurance and repairs year after year?
4. What would my heirs owe, and are they aware?
5. If I own a co-op, will the board approve, and with what limits?
6. If I sell, what would I net? Run the calculator.
7. Have I asked an attorney and a financial advisor, not only the lender?

Free help exists. The resources page lists aging services and legal referral lines, and the CFPB takes questions and complaints about reverse mortgages at (855) 411-2372. If you decide to sell, you can ask to be introduced to an agent on the eXp Realty operating team.