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Are reverse mortgages good or bad?
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Quick Answer: Whether reverse mortgages are good or bad depends on factors like your financial goals, how long you plan to stay in your home, and your ability to meet ongoing loan requirements.
Key Points
Reverse mortgages are often misunderstood. Some concerns are based on how these loans worked in the past rather than how they are structured today.
Modern reverse mortgages include important borrower protections. Counseling, financial assessments, and access limits are designed to help reduce risk.
Reverse mortgages have specific rules around repayment, costs, and eligibility that borrowers should understand before moving forward.
When you hear the term “reverse mortgage,” what’s the first thing that comes to mind? Losing your home? High fees? Complicated and confusing loan terms?
Reverse mortgages tend to spark strong opinions, but a lot has changed since the loan option was first introduced more than 60 years ago. Still, for many consumers, the question remains: Are reverse mortgages good or bad?
There is no single answer. Some borrowers see a reverse mortgage loan as a helpful way to access home equity in retirement, especially when facing financial pressures, while others are wary of the costs and long-term impact.
In this article, we’ll break down why opinions on reverse mortgages vary, how reverse mortgages work now, and what protections are in place for borrowers. We’ll also look at when a reverse mortgage may be a good fit—and when it may not—so you can decide if it’s right for you.
How did reverse mortgages get a bad reputation?
Reverse mortgages got a bad reputation in part because earlier versions of these loans had fewer consumer protections and less oversight.
Here’s a quick history lesson: The first reverse mortgage was created in 1961 by a loan officer at Deering Savings & Loan in Portland, Maine, to help a widow remain in her home after her husband died.
As more lenders began offering reverse mortgages in the 1970s, consumer protections and industry oversight remained limited. This led to confusion and, in some cases, bad borrower experiences. Over time, regulators introduced safeguards to help ensure borrowers receive clearer information and stronger protections throughout the loan process.
Below are some of the key issues that shaped early homeowner perceptions—and how they have evolved.
Gaps in oversight put older homeowners at risk
Early reverse mortgages had less oversight, which made them more confusing for borrowers and led to differences in loan terms and requirements from one lender to another.
In 1989, the U.S. Department of Housing and Urban Development (HUD) introduced the Home Equity Conversion Mortgage (HECM), a reverse mortgage insured by the Federal Housing Administration (FHA), to establish a standardized, government-insured loan option with defined guidelines and borrower protections.¹
Borrowers took all their funds at once
Earlier versions of reverse mortgages allowed some borrowers to access all of their available funds upfront. In some cases, this left them without additional funds later in retirement.
To address this risk, HUD introduced changes to how homeowners access HECM funds. Since 2013, borrowers have been subject to limits on how much of their available proceeds may be taken in the first year.1
According to HUD guidelines, borrowers may access the greater of 60% of their available proceeds or the amount needed to cover mandatory obligations, plus an additional 10% in the first year.1
Some borrowers didn’t understand loan terms
In the past, reverse mortgages didn’t always require borrowers to speak with an independent counselor. Instead, homeowners often relied on explanations from loan officers, so they didn’t always understand how the loan worked or what would be expected of them over time.
Today, all HECM borrowers must complete a counseling session with an independent, HUD-approved agency before applying for a loan. This is designed to help borrowers understand how the loan works, how interest accrues, what triggers repayment, and the ongoing responsibilities required to keep the loan in good standing.1
The term ‘reverse mortgage’ may be confusing
The phrase “reverse mortgage” was originally coined to describe how the loan works compared to a traditional, or forward, mortgage. With the latter, you borrow money to buy a home and repay it over time. A reverse mortgage works differently, allowing you to access equity from a home you already own, with repayment typically required when certain conditions are met.
While the name reflects how the loan functions, the word “reverse” may carry negative connotations. For some borrowers, it could sound unfamiliar or risky, which may contribute to confusion and lingering misconceptions.
How do reverse mortgages work today?
Today’s reverse mortgages follow standardized guidelines and are structured to provide borrowers with clearer expectations around how the loan works. They may help eligible older homeowners access a portion of their home equity to cover living expenses or other financial needs, without required monthly mortgage payments as long as ongoing loan obligations are met.
The loan typically becomes due when the last borrower sells the home, moves out permanently, passes away, or no longer meets the loan requirements. These obligations include paying property taxes (also known as real estate taxes), maintaining homeowners insurance, and keeping the home in good condition, as well as paying homeowner association fees if applicable.
The most common type of reverse mortgage is the HECM, which is insured by the FHA. This insurance establishes program standards and includes protections for borrowers, such as limits on how the loan is repaid.¹
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, see our guide, What is a reverse mortgage and how does it work?
For a general overview of reverse mortgage loans, the Consumer Financial Protection Bureau (CFPB) provides additional information.
What protections are in place for reverse mortgage borrowers?
Reverse mortgages now include safeguards to help borrowers understand the loan and manage it over time.
One example of these protections is the HECM counseling requirement, which helps ensure borrowers understand how the loan works, how interest accrues, what triggers repayment, and the responsibilities that come with a reverse mortgage.
HECMs also include limits on how much may be accessed in the first year, helping borrowers manage their proceeds over time. In addition, borrowers have a short period after closing to cancel the loan without penalty, which is known as the right of rescission.
These protections are summarized below:
| Protection | What it does | Why it matters |
| HUD-approved counseling | Explains loan terms | Helps borrowers understand the loan |
| Financial assessment | Reviews financial readiness | Helps ensure borrowers can continue to meet loan terms over time |
| Access limits | HECM limits first-year draws | Helps borrowers avoid using funds too quickly |
Reverse mortgages may also include non-recourse protections that limit how the loan is repaid, such as not requiring repayment beyond the home’s value when the loan becomes due and the property is sold.2
That being said, borrowers are still responsible for meeting certain loan requirements. This includes paying property taxes, maintaining homeowners insurance, and keeping the home in good condition.
To learn more, please visit the CFPB’s “Reverse Mortgage: A Discussion Guide.”
What are the eligibility requirements for a reverse mortgage?
Eligibility depends on the type of reverse mortgage you choose—whether it’s a federally insured HECM or a proprietary loan from a private lender—but all options share a core set of requirements designed to help ensure the loan fits your financial situation.
In general, you will need to:
- Complete counseling with a HUD-approved housing counselor
- Live in the home as your primary residence
- Stay current on property taxes, homeowners insurance, and home maintenance costs
- Have sufficient home equity
- Meet lender financial assessment criteria
→ Learn more: What are reverse mortgage eligibility requirements?
How much can you borrow with a reverse mortgage?
The amount you may be able to borrow with a reverse mortgage depends on several factors, including your age, your home’s appraised value, current mortgage rates, and the costs associated with the loan.
In general, borrowers who are older, have more equity, and/or have higher home values may be able to access a larger portion of their equity. Your lender will calculate your available proceeds based on these factors.
What fees and costs are associated with a reverse mortgage?
Reverse mortgage costs and fees may include origination fees, closing costs, and mortgage insurance premiums, such as an upfront mortgage insurance premium, and, in some cases, a monthly servicing fee. Other upfront charges may include mortgage taxes and additional lender fees, depending on the lender and product.
Some of these expenses may be paid out of pocket, while others are financed into the loan. When they are included in the loan balance, the total amount owed increases over time as interest and fees accrue.
In some cases, these costs may be higher than those associated with other borrowing options, such as a home equity loan, home equity line of credit (HELOC), or cash-out refinance. Depending on your situation, these alternatives may be worth evaluating.²
→ To learn more, see our guide to reverse mortgage costs and fees.
What are the payout options for reverse mortgage funds?
Reverse mortgages offer several ways to receive your funds, depending on your financial needs. Common options include a lump sum (a one-time payment), a line of credit, or monthly payments.
The table below compares how each option works:
| Payout option | How funds are received | May work best for |
| Lump sum | All at once | Larger one-time expenses |
| Line of credit | As needed | Flexible access over time |
| Monthly payments | On a set schedule | Ongoing cash flow needs |
To learn more, see our guide on understanding reverse mortgage payout options.
How can you use the funds from a reverse mortgage?
Reverse mortgage funds may be used for a variety of financial needs, depending on your goals. Common uses include medical bills, everyday living costs, unexpected expenses, home repairs or improvements, and travel or other lifestyle priorities.
Some borrowers also use the funds to support family members or manage expenses more effectively over time.
When is it a good idea to get a reverse mortgage?
A reverse mortgage may be a good option for homeowners age 62 and older who need additional cash flow and own their home outright or have a low mortgage balance, although some proprietary reverse mortgages may be available to younger borrowers.
Consider a hypothetical example:
Mike is 72 and recently retired. He owns his home outright and has built significant equity, but his income feels tight—especially when unexpected expenses like home repairs or medical bills arise. He has heard friends talk about negative experiences with reverse mortgages, which makes him unsure whether they are a good fit.
To better understand his options, Mike compares alternatives such as a home equity loan, home equity line of credit (HELOC), and cash-out refinance. Each comes with different requirements, costs, and repayment structures. He also speaks with a counselor to better understand how a reverse mortgage works, including the costs, responsibilities, and long-term considerations.²
After reviewing his options, Mike decides a reverse mortgage may align with his goal of staying in his home and avoiding a required monthly mortgage payment, while accessing a portion of his home equity.
His situation illustrates how a reverse mortgage may work well for some homeowners but not for others, depending on their goals, timeline, and financial situation. Reverse mortgages are typically less suitable for those who expect to move within a few years, since the loan becomes due when the home is sold or no longer the primary residence. The table below highlights when a reverse mortgage may be a good fit—and when it may not.
| May be a good fit for borrowers who: | May not be the best fit for borrowers who: |
| Need to supplement retirement income | Plan to move soon |
| Want to stay in the home long term* | Want to preserve as much equity as possible |
| Own home outright or have a low mortgage balance | Have better lower-cost borrowing options |
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.
*The right to remain in the home is contingent on paying property taxes and homeowner’s insurance, maintaining the home, and complying with the loan terms.
Are reverse mortgages good or bad?
Reverse mortgages are not inherently good or bad—they are a financial tool, and whether they make sense depends on your goals, resources, and long-term plans.
Many homeowners age 62 and older experience a reduction in income during retirement. A reverse mortgage may allow these homeowners to supplement that income using home equity without drawing down other financial assets.
At the same time, reverse mortgages are loans that come with costs and responsibilities. The loan balance increases over time, and borrowers must continue paying property taxes, maintaining homeowners insurance, and keeping the home in good condition. A reverse mortgage may also limit future options, since it must be repaid when the borrower moves out of the home or passes away.
For some borrowers—especially those who plan to remain in their homes and need additional cash flow—a reverse mortgage may be a practical solution. For others, different options may be more appropriate.
If you’re looking into whether this option may be a good fit, try our reverse mortgage calculator to estimate how much you may be able to access based on your home and age.
Frequently asked questions about how reverse mortgages work
Here are answers to some common questions about reverse mortgages and whether they may be a good fit.
Are reverse mortgages a good idea for retirees?
A reverse mortgage may be a good option for some retirees—particularly those who want to supplement income and plan to remain in their homes long term. However, it may not be the right fit for everyone, especially if preserving equity is a priority.
Are reverse mortgages safe?
Reverse mortgages are regulated financial products with borrower protections, especially HECMs, which are insured by the FHA. Requirements such as counseling and financial assessments are designed to help ensure borrowers understand the loan and can meet ongoing obligations.1
Why do some people say reverse mortgages are bad?
Some negative perceptions stem from earlier versions of these loans, which had fewer protections than those available today. Other concerns relate to costs, interest that accrues over time, and the impact on home equity.
What are the downsides to a reverse mortgage?
Reverse mortgage tradeoffs may include higher fees than other home equity alternatives, interest that accrues over time, and a reduction in home equity, which could leave less for heirs. Borrowers must also continue to meet loan requirements, such as paying property taxes and homeowners insurance. If these obligations are not met, the loan may become due.
Can you lose your home with a reverse mortgage?
Yes, you could lose your home with a reverse mortgage if you do not meet the loan requirements. Borrowers must continue to pay property taxes, homeowners insurance, and maintain the home. Failing to meet these requirements may result in the lender calling the loan due.
When is a reverse mortgage repaid?
A reverse mortgage may be repaid at any time, but it is typically required when the last borrower sells the home, moves out permanently, passes away, moves into a nursing home or other long-term care facility, or no longer meets the loan requirements.
What happens if I can’t repay a reverse mortgage?
Reverse mortgages don’t require monthly payments. The loan is repaid when the last borrower leaves the home. If unpaid, the home is sold. With non-recourse protections, borrowers or heirs never owe more than the home’s value, even if the loan balance is higher. Learn more in our in-depth article, How to Pay Back a Reverse Mortgage.2
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.
Will my heirs have to repay my reverse mortgage?
Heirs are not personally responsible for repaying a reverse mortgage. When the loan becomes due, they typically have the option to sell the home to repay the balance or keep the home by paying off the loan, which is usually through refinancing or other funds.
Can a reverse mortgage impact my eligibility for government benefits?
A reverse mortgage does not affect eligibility for Social Security or Medicare. However, it may affect eligibility for certain needs-based programs, such as Medicaid or Supplemental Security Income (SSI), depending on how the funds are received and used. Proceeds that are not spent in the month they are received may be counted as assets.
Is a reverse mortgage better than a HELOC?
A reverse mortgage and a home equity line of credit (HELOC) serve different purposes. A reverse mortgage does not require monthly mortgage payments, while a HELOC typically does. The better option depends on your financial situation, goals, and ability to manage payments.3
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.
Disclosures
1These materials were not provided by HUD or FHA and were not approved by FHA or any government agency.
2A non-recourse reverse mortgage transaction limits the homeowner’s liability to the proceeds of the sale of the home (or any lesser amount specified in the credit obligation).
Non-recourse means that you, or your estate, can’t owe more than the value of your home when the loan becomes due and the home is sold.
Non-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.
3Finance of America does not currently offer home equity loans, home equity lines of credit, or cash-out refinances.
About the author
Lisa Lacy
Lisa Lacy 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.
