The Monthly Payment Nobody Talks About in Retirement Planning

Most retirement planning conversations focus on the right investments, the right withdrawal rate, and the right time to claim Social Security. Those are all important conversations. But there is one number that quietly wrecks a lot of retirement budgets before any of that even matters: the mortgage payment.

If you are 62 or older and still carrying a mortgage into retirement, you are not alone. A 2022 Harvard Joint Center for Housing Studies report found that more than 40 percent of homeowners aged 65 to 79 still have a mortgage. That number has roughly doubled over the last two decades. And unlike in your working years, that payment is now coming out of a fixed pool of income, not a growing paycheck.

There is a tool specifically designed to fix this problem. It is called a HECM, which stands for Home Equity Conversion Mortgage. It is the FHA-insured reverse mortgage program, and one of the most practical things it can do is wipe out an existing mortgage and eliminate the monthly payment entirely. This post is going to walk you through exactly how that works, who it makes sense for, and what the real trade-offs are.

What a HECM Actually Does

A HECM is a loan that lets homeowners 62 and older convert a portion of their home equity into usable funds without making a monthly principal and interest payment. The loan balance grows over time as interest accrues. The loan comes due when you sell the home, move out permanently, or pass away. At that point, your estate sells the home, pays off the balance, and keeps any remaining equity.

The program is insured by the FHA. That insurance does two things. First, it guarantees that you can never owe more than your home is worth when the loan comes due, even if the balance has grown beyond the home's value. Second, it protects the lender if that happens.

You are still responsible for property taxes, homeowners insurance, and basic maintenance. Those obligations do not go away. But the principal and interest payment does.

How the Payoff Works When You Have an Existing Mortgage

Here is the part a lot of people find surprising. You can use a HECM to pay off an existing mortgage at closing.

When you take out a HECM, the program calculates how much of your home equity you can access based on three things: your age (or the age of the youngest borrower), current interest rates, and the appraised value of your home up to the FHA lending limit, which is currently $1,209,750 for 2025 and adjusts periodically. The result is called the Principal Limit.

If your existing mortgage balance is equal to or less than that Principal Limit, the HECM proceeds pay off your current mortgage at closing. After that, you owe nothing further each month.

Let me put a real scenario on the table.

A Real-World Example from Central Texas

Meet a couple in Lakeway. Both are 68 years old. They own a home worth $625,000. They have a remaining mortgage balance of $180,000 with a payment of $1,450 per month. Their Social Security and a small pension cover the basics, but the mortgage payment eats into everything.

Based on their age and the current rate environment, their HECM Principal Limit might be somewhere around 45 to 52 percent of their home value, depending on current rates. Even at the conservative end, that is roughly $280,000 in available equity access, well above their $180,000 payoff need.

Here is what happens at closing. The HECM pays off the $180,000 balance. The old lender is satisfied. The lien is released. And starting the day that loan closes, the couple no longer has a monthly mortgage payment. That is $1,450 per month returned to their budget, every single month, for as long as they live in that home.

Any remaining Principal Limit after the payoff can be taken as a lump sum, set up as a line of credit, or structured as monthly payments to them. In this scenario they might have $80,000 to $120,000 in remaining access after the payoff, which they could leave in a growing line of credit for future needs.

Who This Strategy Makes the Most Sense For

Not everyone with a reverse mortgage question should use a HECM to pay off their existing mortgage. But for a specific group of people, it is one of the clearest financial moves available.

This strategy works best when:

  • You have a meaningful monthly mortgage payment that is straining your fixed income
  • Your existing mortgage balance is low enough relative to your home value that the HECM Principal Limit covers it
  • You plan to stay in the home long-term (five-plus years at minimum)
  • You want to age in place and need to protect your monthly cash flow to do it
  • Your home equity is a major portion of your net worth and you want to access it without selling

In Travis County, Williamson County, and Hays County, home values have appreciated dramatically over the last decade. A lot of older homeowners in neighborhoods like Westlake, Round Rock, and Cedar Park are sitting on substantial equity with relatively small remaining mortgage balances. That combination is almost perfectly designed for this strategy.

What You Are Giving Up

I want to be straight with you about the trade-offs, because pretending there are none would be doing you a disservice.

The Balance Grows Over Time

Because you are not making payments, the interest compounds and gets added to the loan balance each month. Over 15 to 20 years, a HECM balance can grow significantly. That means the equity available to your estate at the end is lower than it would be if you had kept paying down a traditional mortgage.

If leaving maximum home equity to heirs is a top priority, that tension is real and worth having a direct conversation with your family about.

Upfront Costs Are Higher Than a Traditional Refinance

HECM closing costs include an upfront FHA mortgage insurance premium of 2 percent of the home value (up to the FHA lending limit), origination fees, and standard third-party costs like title, appraisal, and escrow. These can total $10,000 to $20,000 or more depending on your home value. Most can be rolled into the loan, so you often do not pay them out of pocket at closing, but they do reduce your available equity from day one.

For someone who only plans to stay five years, those costs can be hard to justify. For someone planning to stay fifteen or twenty years, they look very different.

You Must Maintain the Home and Keep Insurance and Taxes Current

This is not optional. Falling behind on property taxes or letting homeowners insurance lapse can trigger a default on the HECM. If you are considering this program, make sure the budget math includes those obligations, not just the elimination of the mortgage payment.

Comparing Your Options Side by Side

If you are weighing a HECM payoff against other options like a traditional cash-out refinance or a HELOC, the differences are significant. A cash-out refi gives you one lump sum and resets your payment, usually higher. A HELOC gives you access to a line of credit but requires interest payments and full repayment eventually, and many lenders pull HELOCs when the market shifts.

The HECM is the only option that eliminates the payment completely while letting you stay in the home. It is also the only one with no repayment obligation as long as you live there.

If you want to model these options against each other with your actual numbers, the MyLoanIQ Loan Comparison tool lets you put a HECM scenario side by side with a traditional refinance or HELOC so you can see the real difference in your monthly picture and long-term equity position.

Questions Worth Asking Before You Move Forward

Before sitting down with a loan officer, it helps to think through a few things:

  1. What is your current mortgage balance and monthly payment?
  2. What is your home's current market value?
  3. What is the youngest borrower's age?
  4. How long do you plan to stay in the home?
  5. What would you do with the monthly savings if the payment went away?
  6. Have you talked to your family and your financial advisor about how this fits your estate plan?

You can also use the MyLoanIQ Scenario Builder to plug in your specific numbers and get a clearer picture of what a HECM payoff might look like for your situation before you ever pick up the phone.

The Bottom Line on Using a HECM to Pay Off Your Mortgage

For the right homeowner in the right situation, using a HECM to eliminate a mortgage payment in retirement is one of the most powerful and underused financial tools available. It turns your home equity into monthly cash flow relief without selling the home, without moving, and without giving up the stability of the place you have built your life around.

It is not the right tool for everyone. The costs are real. The balance growth is real. And the conversation with your family and your financial planner matters. But if you are 62 or older, you have meaningful equity, and a mortgage payment is putting pressure on your retirement budget every single month, this conversation is worth having.

I have been doing this for over two decades and I have seen this strategy genuinely change people's retirement. Not because it is magic, but because eliminating a fixed obligation on a fixed income is a fundamentally powerful thing.

Austen Smith, NMLS #265697. Barton Creek Lending Group, NMLS #264320. This content is educational and does not constitute a loan commitment or guarantee of any specific rate or terms. HECM program details are subject to change. Consult a HUD-approved housing counselor before proceeding with a reverse mortgage.

Want to walk through your numbers? Talk to Austen.