Explore by category
Reverse mortgage pros and cons: What you need to know
In this article:
Quick answer: A reverse mortgage allows eligible homeowners to borrow against the equity they’ve built in their homes. However, interest and fees increase the loan balance over time. Other trade-offs include upfront costs, ongoing homeowner obligations, and potentially less equity for future needs or heirs.
Key Points
Reverse mortgages may provide access to home equity through payout options including a lump sum, monthly payments, or a line of credit, depending on the loan type.
Borrowers retain ownership of the home but must continue meeting loan requirements, including paying property taxes and homeowners insurance, and maintaining the property.
Whether a reverse mortgage makes sense for you depends on your financial needs, available home equity, and retirement priorities.
Even if you don’t know much about reverse mortgages, you’ve probably heard a few warnings—maybe that the lender can take your home, your children will inherit your debt, or even that reverse mortgages are an outright scam.
The facts are more nuanced. Like any financial product, reverse mortgages have both advantages and trade-offs. A reverse mortgage may allow an eligible homeowner to access a portion of their home equity while continuing to own and live in the home, provided they meet the loan requirements. Unlike traditional mortgages, reverse mortgages don’t require monthly mortgage payments, but interest and fees increase the loan balance over time.
Understanding the pros and cons of reverse mortgages may help you separate common misconceptions from reality and decide whether this type of loan fits your retirement plans and financial goals.
→ Learn more: 15 reverse mortgage facts
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Reverse mortgage pros and cons at a glance
Reverse mortgages may offer several advantages, but they also come with costs and responsibilities worth considering. Here’s a quick overview of the main pros and cons.
| Potential pros | Potential cons |
| No required monthly mortgage payments* | Interest and fees increase the loan balance over time |
| Access to home equity without selling the home | Less equity may be available for future needs or heirs |
| Several ways to receive funds, depending on the loan type | Upfront and ongoing costs may apply |
| HECM consumer safeguards, including non-recourse protection1 | Ongoing property and occupancy obligations |
| Reverse mortgage proceeds are generally not taxable income | Some needs-based assistance may be affected |
*The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
To learn more, please visit the CFPB’s “Reverse Mortgages: A Discussion Guide.”
Reverse mortgage pros
The following advantages highlight some of the ways these loans may be useful.
No required monthly mortgage payments
Unlike traditional mortgages and other home equity borrowing options, such as home equity loans and home equity lines of credit (HELOCs), reverse mortgages don’t require monthly mortgage payments. This may help homeowners reduce their monthly expenses, particularly if they use the loan to pay off an existing mortgage.
Reverse mortgage borrowers may choose to make voluntary payments, which may help slow how quickly the loan balance grows and preserve more home equity.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Finance of America does not currently offer home equity loans or HELOCs.
Access home equity while staying in your home
For older homeowners who want to age in place, a reverse mortgage may provide access to funds for things like home modifications, healthcare, or in-home care without requiring them to sell or move.
Borrowers retain ownership of their home while the reverse mortgage is outstanding, as long as they meet loan requirements, including living in the home as their principal residence, paying required property charges, and maintaining the home.
→ Read more: How to age in place: A planning guide for homeowners
The right to remain in the home is contingent on paying property taxes and homeowners insurance, maintaining the home, and complying with the loan terms.
Flexible payout options
Reverse mortgages offer different ways to access home equity depending on the loan type. Options may include a lump sum, monthly payments, a line of credit, or a combination of these methods.
With an adjustable-rate Home Equity Conversion Mortgage (HECM) line of credit, the amount available to borrow may increase over time, even if the home’s value stays the same. The increase is based on the loan’s interest rate and mortgage insurance premium rate. In other words, you may have more money available to borrow later, but you’re not earning interest on the unused funds.
Additionally, a HECM line of credit generally cannot be frozen or reduced solely because the home’s value declines, as long as the borrower continues to meet applicable loan requirements. This may make it a useful source of funds for future expenses.
Reverse mortgages may provide retirement flexibility
You may use reverse mortgage funds to pay off an existing mortgage, cover everyday expenses, or pay for larger costs, such as home repairs or unexpected medical bills.
For some homeowners, having access to home equity may mean they don’t need to draw as heavily on their retirement savings to cover certain expenses.
HECMs include consumer safeguards
HECMs are insured by the Federal Housing Administration (FHA) and have requirements designed to help protect borrowers. Before getting a HECM, borrowers must complete counseling with a HUD-approved housing counseling agency to review the loan’s features, costs, and responsibilities.
Lenders also review borrowers’ finances to determine whether they may be able to keep up with property taxes, homeowners insurance, and other required expenses. In some cases, borrowers must set aside part of their loan proceeds to help cover these costs through a Life Expectancy Set-Aside (LESA).
HECMs are also non-recourse loans, which means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender cannot look to your other assets (or your estate’s assets), even if the loan balance is higher.1 Other safeguards include provisions for eligible non-borrowing spouses and the ability to repay some or all of the loan early without a prepayment penalty.
Proprietary reverse mortgages may offer similar safeguards, but their specific terms vary by product.
→ Find out more: What is a HECM loan, and how does it work?
Heirs may still inherit or keep the home
A reverse mortgage doesn’t prevent homeowners from leaving their property to their heirs. When the last borrower dies, heirs have several options for resolving the loan, including selling the property, repaying or refinancing the loan to keep it, or allowing the lender to take possession.
For HECMs, heirs may be able to keep the property by repaying the outstanding loan balance. If the loan balance exceeds the home’s appraised value, heirs may be able to keep the home by paying 95% of that value, as long as they meet the HECM requirements.
The options and requirements for proprietary reverse mortgages may differ depending on the loan terms.
→ Explore further: Are heirs responsible for reverse mortgage debt?
Reverse mortgage proceeds are generally not taxable
Reverse mortgage proceeds generally aren’t subject to federal income tax because they’re borrowed money, not earnings. However, your individual tax circumstances vary. Speak with a tax professional to understand how a reverse mortgage may affect your specific situation.
Generally, reverse mortgage proceeds, like other loan advances, are not income and therefore are not taxable. Not tax advice. Consult a tax professional.
Reverse mortgage cons
Reverse mortgages also have drawbacks worth considering. Here’s what you’ll want to keep in mind.
Reverse mortgages may reduce available home equity over time
Unlike a traditional mortgage, where regular principal payments reduce the amount you owe, a reverse mortgage balance grows over time as interest and applicable fees are added to the loan. As the balance increases, the amount of available home equity may decrease, although changes in the home’s market value also affect how much equity remains.
Less equity in your home could limit your options if you need funds for future expenses or decide to sell. It may also reduce the amount of equity available to leave to your heirs.
Upfront and ongoing costs may apply
Reverse mortgages come with costs that vary by loan type and lender. These may include origination fees, appraisal fees, closing costs, and counseling fees. FHA-insured HECMs also require upfront and annual mortgage insurance premiums. Some reverse mortgages may also have servicing fees.
You may be able to add some of these costs to the loan rather than pay them up front. Doing so increases the amount you owe and leaves less home equity available. That’s one reason to compare the total costs of a reverse mortgage with other borrowing options.
→ Learn more: Reverse mortgage fees and costs explained
Ongoing property and occupancy obligations remain
Even without the required monthly mortgage payments, homeowners must continue to meet certain obligations, which may be especially important to budget for when living on a fixed income. These include living in the home as their principal residence, paying required property charges, such as property taxes, homeowners insurance, and applicable homeowners association (HOA) dues, and maintaining the home.
An extended absence from the home, such as a prolonged stay in a nursing home or assisted living facility, may also affect the loan.
If borrowers don’t meet these requirements, the loan may become due and payable. If the issue isn’t resolved, the lender may eventually begin foreclosure proceedings.
The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the homeowner does not meet these loan obligations, then the loan will need to be repaid.
Needs-based benefits may be affected
Although reverse mortgage proceeds generally aren’t considered income, they may affect eligibility for certain needs-based government assistance programs, such as Medicaid, Supplemental Security Income (SSI), and the Supplemental Nutrition Assistance Program (SNAP).
For example, if you keep unused reverse mortgage funds in a bank account, they may count toward the asset limits for certain assistance programs. Eligibility rules vary depending on the type of assistance and your individual circumstances.
If you receive or plan to apply for needs-based assistance, talk with a benefits specialist or financial professional about how a reverse mortgage could affect your eligibility before making a decision.
Reverse mortgages can be more complex than traditional borrowing
Reverse mortgages work differently from traditional mortgages and home equity loans. Rather than following a regular monthly repayment schedule, the loan generally becomes due after certain events occur, such as selling the home, permanently moving out, the death of the last borrower, or noncompliance with the loan terms.
Understanding how interest, fees, and repayment requirements work together may take some time. For HECMs, required counseling with a HUD-approved housing counseling agency helps borrowers review these details before making a decision.
Finance of America does not currently offer home equity loans or HELOCs.
What should you consider before getting a reverse mortgage?
The pros and cons of a reverse mortgage won’t carry the same weight for everyone. As you consider whether one makes sense for you, ask yourself:
- How long do you plan to stay in your home? Reverse mortgages generally become due when you sell or permanently move out. If you expect to move soon, the upfront costs may outweigh the advantages.
- How much home equity do you want to preserve? Consider whether you may need equity for future expenses or want to leave as much of your home’s value as possible to your heirs.
- Can you comfortably meet ongoing homeowner obligations? You’ll still need to pay the required property charges and maintain the home. Think about whether your income and savings will allow you to meet these expenses over time.
- How much money do you need, and when? Look at whether the available payout options align with your anticipated expenses and whether you may be eligible to borrow enough to cover them.
- How does a reverse mortgage fit into your retirement planning? Consider your other income sources, savings, and long-term goals, as well as whether another financing option might better meet your needs.
→ Dive deeper: Is a reverse mortgage a good idea?
What are some reverse mortgage alternatives?
A reverse mortgage isn’t the only way to access home equity or address financial needs in retirement. Depending on your circumstances, other options may include:
- Home equity loan: Allows you to borrow a lump sum against your home equity, typically with a fixed interest rate and required monthly principal and interest payments.
- Home equity line of credit (HELOC): Provides a revolving line of credit that lets you borrow against your available home equity as needed during the draw period. HELOCs generally have variable interest rates and require monthly payments.
- Cash-out refinance: Replaces your existing mortgage with a larger loan, allowing you to receive the difference, minus applicable costs, in cash. You’ll make monthly payments on the new mortgage, so it’s important to compare its rate and terms to your current loan.
- Downsizing: Selling your home and moving to a less expensive property may allow you to access equity without taking on additional debt. However, moving expenses, transaction costs, and changes in housing costs are important factors to consider.
These options differ in their costs and requirements, including how and when borrowed funds must be repaid.
→ Compare your options: 9 alternatives to a reverse mortgage
Finance of America does not currently offer home equity loans or HELOCs.
Final thoughts: Weighing your options before deciding
A reverse mortgage may make sense for some homeowners but not others. Before deciding, consider what you hope to accomplish, how the loan would affect your finances, and whether the costs and responsibilities are manageable.
You may also want to compare other ways to access home equity and discuss your plans with a financial advisor or another trusted professional.
If you’re curious about how much home equity you may be able to access, Finance of America’s reverse mortgage calculator is a good place to start.
FAQs about reverse mortgage pros and cons
Who is eligible for a reverse mortgage?
Eligibility depends on the type of reverse mortgage. HECMs require borrowers to be at least 62 years old, while some proprietary reverse mortgages are available to homeowners as young as 55, depending on the product and location. Other requirements generally include sufficient home equity, an eligible property, and the ability to meet ongoing loan obligations.
→ Read more: Reverse mortgage eligibility requirements
How much can you borrow with a reverse mortgage?
How much you may be able to borrow with a reverse mortgage loan depends on several factors, including your age, home value, interest rates, existing mortgage balance, and loan type. HECMs are also subject to FHA lending limits. Proprietary reverse mortgages may offer higher loan amounts for homeowners with higher-value properties.
→ Learn more: What is a jumbo reverse mortgage, and who are they for?
Can a non-borrowing spouse stay in the home?
An eligible non-borrowing spouse may be able to remain in the home after the borrowing spouse dies, provided they meet applicable requirements. For HECMs, certain safeguards may allow an eligible non-borrowing spouse to defer repayment, although they generally cannot access additional loan proceeds. Safeguards for proprietary reverse mortgages vary by product.
→ What to know: The non-borrowing spouse’s guide to reverse mortgage
When does a reverse mortgage become due?
A reverse mortgage generally becomes due when the last borrower dies, sells the home, or permanently moves out. The loan may also become due if the borrower fails to meet certain obligations, such as paying required property charges, maintaining the home, or meeting occupancy requirements. Eligible non-borrowing spouses may have protections that allow them to remain in the home after the borrower dies.
What happens to a reverse mortgage when the homeowner dies?
When the last borrower dies, the reverse mortgage generally becomes due and payable, although eligible non-borrowing spouses may be able to defer repayment under certain circumstances. Heirs may have options to sell the home, repay or refinance the loan to keep the property, or allow the lender to take possession. The specific requirements depend on the loan type.
→ Get the details: How does a reverse mortgage work when you die?
What happens if home values decline after getting a reverse mortgage?
A decline in home value doesn’t cause a reverse mortgage to become due and payable. However, it may reduce the homeowner’s remaining equity and affect the repayment process down the line. FHA-insured HECMs are non-recourse loans, meaning borrowers and heirs aren’t personally responsible for repaying more than the home’s value, even if the loan balance is higher. Some proprietary reverse mortgages also offer non-recourse protections, but the specific terms vary by loan.1
Does a reverse mortgage affect Social Security or Medicare?
Reverse mortgage proceeds generally don’t affect Social Security retirement benefits or Medicare eligibility because they’re borrowed money rather than income. However, unspent proceeds may affect eligibility for needs-based assistance, such as Supplemental Security Income (SSI) or Medicaid, depending on the program’s rules and how you hold or use the funds. Consult a benefits specialist if you receive or expect to apply for needs-based assistance.
1Non-recourse means that if you default on the loan, or if the loan cannot otherwise be repaid, the lender cannot look to your other assets (or your estate’s assets) to meet the outstanding balance on your loan. The loan can only be satisfied through the value of your property.
About the author
is a Senior Web Content Writer at Finance of America and a journalist with more than 20 years of experience specializing in business, and technology. Her work has been published in The Wall Street Journal, The Financial Times, and numerous other leading outlets.
Disclaimer
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For tax advice, please consult a tax professional. For more information about whether a reverse mortgage fits into your retirement strategy, you should consult your financial advisor.
