If you’re retired or approaching retirement and looking for ways to supplement your income, you may have heard about something called a reverse mortgage. Maybe a friend mentioned it, or you saw a TV commercial—but you’re not quite sure what it is, how it works, or whether it’s a good idea.
Let’s clear up the confusion with a simple, straightforward explanation of what a reverse mortgage is, how it can help retirees, and who it’s best suited for. Along the way, we’ll also tackle some common myths and misunderstandings so you can make an informed decision.
So, What Is a Reverse Mortgage?
A reverse mortgage is a special type of home loan available to homeowners age 62 or older that allows you to tap into your home equity without selling your house or taking on a new monthly mortgage payment.
Instead of you paying the bank, the bank pays you.
It’s called a “reverse” mortgage because it works in the opposite way of a traditional mortgage. With a regular mortgage, you borrow money and make payments each month to pay off your loan. With a reverse mortgage:
- You borrow money against the value of your home
- You don’t make monthly payments
- The loan is repaid when you move out, sell the home, or pass away
The most common type of reverse mortgage is a Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA) and regulated by the federal government.
How Does It Work?
Here’s a simple example:
Let’s say you’re 70 years old, and your home is worth $400,000. You own it outright or have a small remaining mortgage. You want to access some of that value to help with living expenses, healthcare costs, or home improvements.
With a reverse mortgage, you might be able to access 40% to 60% of your home’s value—depending on your age, the interest rate, and your home’s value.
So you could potentially get $160,000 to $240,000, and you can choose how you receive it:
- As a lump sum
- In monthly payments
- As a line of credit
- Or a combination of the above
You continue to own your home, and you can live in it as long as you want. You’re still responsible for property taxes, homeowners insurance, and keeping up with basic maintenance.
What Are the Pros?
Reverse mortgages aren’t for everyone—but for the right retiree, they offer a number of helpful benefits:
✅ Stay in Your Home
You don’t have to downsize or sell. You can remain in the home and neighborhood you love, with no monthly mortgage payment.
✅ Turn Equity Into Income
You’re sitting on a valuable asset—your home. A reverse mortgage allows you to turn some of that value into cash without selling.
✅ No Monthly Payments
Unlike a traditional loan, you’re not required to make monthly payments. That’s a big relief for many retirees on a fixed income.
✅ Non-Taxable Income
The money you receive from a reverse mortgage is not considered taxable income, because it’s a loan—not earned income.
✅ Flexibility
You can use the money however you like: paying off debt, covering medical expenses, remodeling your home, or just making life a little more comfortable.
✅ Federally Insured Protections
With a HECM reverse mortgage, you (or your heirs) will never owe more than the home is worth, even if property values decline.
What Are the Cons?
While there are many advantages, a reverse mortgage is still a loan—and it’s important to understand the potential downsides:
❌ It Reduces Your Home Equity
As you receive payments, the loan balance grows. This means there will be less equity left in the home for you or your heirs.
❌ You Must Maintain the Home
You’re still responsible for property taxes, insurance, and upkeep. If you don’t stay current, the loan could become due early.
❌ Fees Can Be Higher
Reverse mortgages often come with upfront fees and closing costs. These are usually rolled into the loan but can still be significant.
❌ Not Ideal for Short-Term Plans
If you plan to move within a few years, a reverse mortgage might not make sense. It’s best for those planning to stay in their home long-term.
Common Misconceptions (and the Truth)
Let’s set the record straight on a few myths that still float around:
❌ Myth: The bank owns your home.
Truth: You remain the owner of your home—just like with any mortgage. You can live there as long as you like.
❌ Myth: You can be forced out.
Truth: As long as you meet the loan requirements—such as living in the home and paying taxes/insurance—you can stay in your home for life.
❌ Myth: It’s only for people who are desperate.
Truth: While reverse mortgages can be a lifeline for some, they’re also used by financially savvy retirees as part of a broader retirement income strategy.
❌ Myth: Heirs get stuck with the debt.
Truth: Your heirs can choose to repay the loan (and keep the home) or sell the home. If the home sells for less than the loan amount, the FHA insurance covers the difference—not your heirs.
Who Should Consider a Reverse Mortgage?
A reverse mortgage can be a smart solution if:
- You’re 62 or older
- You have substantial equity in your home (or own it outright)
- You plan to live in your home long-term
- You want to increase monthly cash flow
- You prefer not to sell or downsize
It’s especially helpful for retirees who are “house rich and cash poor”—with a valuable home but limited income.
Who Should Probably Pass?
It might not be the right fit if:
- You plan to move or sell within a few years
- You can’t keep up with taxes, insurance, and maintenance
- You want to leave your home fully paid off to heirs
In those cases, downsizing, a home equity line of credit, or selling and renting might be better options.
Final Thoughts: It’s Not a Last Resort—It’s a Tool
Reverse mortgages have come a long way. Today’s reverse mortgage isn’t a “last resort”—it’s a flexible financial toolthat can help retirees live more comfortably, confidently, and independently.
Used wisely, it can supplement your income, reduce financial stress, and allow you to stay in the home you love.
Want to Learn More?
This article is adapted from my book:
📘 Affordable Housing for Seniors: 12 Strategies to Cut Your Housing Costs by 30% to 60%
Available now on Amazon.com in paperback and eBook formats.
Inside, you’ll learn about reverse mortgages, co-housing, ADUs, manufactured homes, and many other ways to reduce housing expenses in retirement.
Disclaimer: This article is for educational and informational purposes only and does not constitute financial, legal, or mortgage advice. Reverse mortgages are complex financial products, and rules may vary by location and lender. Please consult with a qualified financial advisor or HUD-approved reverse mortgage counselor before making any decisions.