Reverse Mortgage Pros and Cons: What You Really Need to Know

For many older Americans, a significant portion of their wealth is tied up in their home equity. A reverse home mortgage is a unique financial product designed to allow homeowners aged 62 and older to tap into that equity without having to sell their home or take on a monthly mortgage payment. As of 2025, it remains a popular but often misunderstood tool for supplementing retirement income.

Understanding how a reverse mortgage works—including its benefits, risks, and obligations—is essential before making a decision.

What is a Reverse Mortgage and How Does It Work?

A reverse mortgage is a loan that allows eligible homeowners to convert a portion of their home equity into cash. Unlike a traditional "forward" mortgage where you make monthly payments to a lender, a reverse mortgage pays you. The loan balance grows over time as you receive funds and as interest accrues.

The most common type in the United States is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA).

Eligibility Requirements:

You must be 62 years of age or older.

You must own your home outright or have a significant amount of equity.

The home must be your primary residence.

You must complete a mandatory counseling session with a HUD-approved counselor.

You can receive your funds as a lump sum, a monthly payment, a line of credit, or a combination of these options. The loan does not have to be repaid until the last surviving borrower permanently moves out, sells the home, or passes away.

The Pros and Cons

Key Benefits:

Supplement Income: Provides tax-free funds to cover livingexpenses, healthcare costs, or home modifications.

Eliminate Monthly Mortgage Payments: If you still have a mortgage, the reverse mortgage proceeds must first be used to pay it off, freeing up significant monthly cash flow.

Age in Place: Allows seniors to remain in their homes and communities without having to sell.

Critical Risks and Homeowner Obligations:

Growing Loan Balance: Your debt increases over time as interest and fees are added to the loan balance, which will reduce the equity left for you or your heirs.

Ongoing Costs: This is the most crucial part to understand. You are still responsible for paying property taxes, homeowners insurance, and maintaining the home. Failure to meet these obligations can violate the loan terms and lead to foreclosure.

Debunking Common Myths

Myth: The bank owns my home.
- Fact: This is false. You retain the title and full ownership of your home. The reverse mortgage is simply a lien on the property, just like a traditional mortgage.

Myth: My children will inherit the debt.
- Fact: HECMs are non-recourse loans. This means your heirs will never owe more than the home is worth when the loan is due. They can choose to sell the home to repay the loan or pay it off with other funds to keep the property. The FHA insurance covers any shortfall if the home's value is less than the loan balance.

A reverse mortgage can be a powerful financial tool for the right candidate. By understanding your responsibilities and weighing the pros and cons with a trusted financial advisor and your family, you can determine if it's the right choice for your retirement goals.