Is a Reverse Mortgage Right for You?
When homeowners consider whether to take out a reverse mortgage, knowing how the process works is half the battle
Reverse mortgages can help older adults meet the costs of aging in place and enjoy financial security. However, it is essential to fully understand the terms and risks of a reverse mortgage before signing on the dotted line.

When considering a reverse mortgage, which is one way for homeowners to borrow money using their home equity as security for the loan, older adults can be vulnerable to financial scams and overzealous lenders who don't have the borrower's best interests in mind. Borrowers often dismiss or play down the possibility of unforeseen circumstances like death or needing to move to another state.
"Seniors have trillions of dollars locked up in their home equity."
Soaring home prices have enabled homeowners to build significant equity in their properties, making a reverse mortgage, on its face, a compelling option for older adults.
"Right now, seniors have trillions of dollars locked up in their home equity and increasingly, seniors want to age in place," says Julia Gordon, Assistant Secretary for Housing and Federal Housing Commissioner at the Department of Housing and Urban Development (HUD). "The combination of those two things means that they are looking for a way to tap their home equity without moving out of their house."
Yet, a reverse mortgage might not be suitable for everyone, and even if you're a good candidate, not understanding the loan's terms or potential scams can put you at risk of default.
Understand Loan Terms to Avoid Default
Like traditional mortgages, reverse mortgages enable homeowners to borrow money using as collateral their home's equity — the difference between the current market price and the amount the titleholders still owe on it.
Reverse mortgages differ from other home loans in that borrowers do not make monthly mortgage payments. This makes reverse mortgages more appealing to cash-poor retirees than traditional loans that require monthly payments.
Taking out a reverse mortgage is a major financial decision, so it is important to consult with an expert to ensure you fully grasp the loan's particulars and your obligations as the borrower.
However, the absence of a monthly mortgage payment can make it easier for homeowners to overlook property tax payments, homeowner insurance premiums and other costs that are often bundled with mortgage payments. That, in turn, can push borrowers to default.
However, rising house prices and improved consumer education have caused defaults to decrease recently. Between 2019 and 2023, defaults declined by 24%, from 40,493 to 30,924, according to data from HUD.
According to the Consumer Finance Protection Bureau, the most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), a loan insured by HUD.
The HECM is designed to help lower-income homeowners, thus "reducing the effect of . . . economic hardship" and enabling homeowners to access their home equity to meet their immediate needs. Borrowers must be at least 62 years old to qualify for a HECM. Private reverse mortgages, which the FHA does not insure, may be taken out by people as young as 55.
Seek Advice on Reverse Mortgages
Taking out a reverse mortgage is a major financial decision, so it is important to consult with an expert to ensure you fully grasp the loan's particulars and your obligations as the borrower. In fact, before you can take out an HECM, you must have a counseling session with a third-party counselor approved by HUD.
These counselors work to ensure borrowers understand the implications of their mortgage, Gordon says. For example, with a reverse mortgage, the balance increases every month because the borrower isn't required to make principal or interest payments.
The mortgage needs to be paid off in full if the borrower moves or dies.
The counselor will explain the loan's costs, benefits and risks while comparing a reverse mortgage with other options to tap your home's equity, like selling your home. Most importantly, they are available to answer your questions and review information given to you by your lender to ensure you are not being taken advantage of.
"It's almost like a quiz to make sure the borrower truly has internalized the factors they've gone over before the borrower signs on that dotted line with the lender," Gordon said.
Reverse mortgage counseling typically costs between $125 to $200, according to American Advisors Group. A lender cannot pay the counseling fees to ensure impartiality.
Discussing Reverse Mortgage Risks
Homeowners considering taking out a reverse mortgage should remember that the decision could have long-term implications, such as being unable to leave their home as an asset to their children.
"Counselors always try to encourage borrowers to discuss with their families any implications."
"The reverse mortgage system allows the legal heirs to adjust the outstanding loan after the death of the mortgagor and claim the property," says Christiana C. Ryals, Certified Mortgage Advisor at Fiona, a loan brokerage in New York. "However, if the liability is high, the legal heir might not get the property."
Downstream events like these might not be immediately apparent to the borrower when they take out the reverse mortgage, but it's the counselor's job to brief them so they can make the right decision for their family.
"Counselors always try to encourage borrowers to discuss with their families any implications," Gordon says. "Obviously, you can't make that a requirement, but it's something that's important for people to understand."
Because reverse mortgages require the owner to reside in the home, borrowers are taking a risk should they have to leave for any reason, such as getting hospitalized for an extended period, Ryals says. The house must be re-sold to repay the reverse mortgage in those scenarios.
Reverse Mortgage Scams
New reverse mortgage scams targeting older adults pop up regularly, but they are often targeted by tried and true scams that have existed for decades.
Foreclosure scams target homeowners at risk of losing their homes to foreclosure by presenting a reverse mortgage as a way of paying off their existing mortgage. Then, they snare borrowers with high fees and closing costs.
With an equity theft scam, dishonest appraisers and loan officers collaborate to inflate a home's value, making it seem like the homeowner has more equity than they do. Then, the scammers convince the homeowner to get a reverse mortgage to cash in on their supposedly higher equity.
One of the advantages of a Home Equity Conversion Mortgage is that it's well-regulated compared to other options on the market.
"You'll be able to find on the internet all kinds of companies saying, 'We'll sign a contract, and you'll agree to give me your home appreciation in the future for cash now . . . or we'll buy your house, but then we'll let you live in it," Gordon says. "These are all completely unregulated, and if it were my parent looking at it, I'd be extremely wary of that kind of arrangement."
While scams targeting older homeowners can appear daunting and complicated, a seasoned reverse mortgage counselor is likely familiar with the most common pitfalls lurking for homeowners.
Key Facts About Reverse Mortgages
If you're considering a reverse mortgage, keep in mind that it's only available for your primary residence and selling your home or moving out requires you to repay the loan balance. Discuss your long-term plans with your counselor who can help you weigh the costs and benefits of a reverse mortgage with your specific future in mind.
"Aged grown-ups should be apprehensive that a reverse mortgage can affect their eligibility for certain government benefits."
"You really become dependent on your ability to age in place in your home," says Martin Orefice, CEO of Rent to Own Labs in Orlando. "I recommend keeping at least $50,000 to $100,000 in reserve until you're sure you won't need it, and I also recommend investing in long-term care insurance as soon as possible to defray the costs if that becomes necessary."
If a borrower dies and does not have any surviving co-borrowers or a non-borrowing spouse, their heirs will be required to pay the loan's balance in order to keep the home, according to the Consumer Financial Protection Bureau.
Be sure to let your counselor know about any entitlements you might be counting on in your later years.
"Aged grown-ups should be apprehensive that a reverse mortgage can affect their eligibility for certain government benefits, similar to Medicaid," says Tracy Cauley, a Chartered Financial Analyst in Dallas. "This is because the finances from a reverse mortgage are considered income and can impact a person's fiscal eligibility for these programs."
Do Your Research
If you decide to take out a reverse mortgage, ask your counselor to help you shop around for the best deal. While some fees are set by the government, interest rates and monthly servicing fees vary by lender. When considering lenders, ask for the "total annual loan cost" or TALC to see the full financial impact.
"It's important for anyone considering a reverse mortgage to do their research and consult with a financial expert to understand the risks and benefits fully," CFA Melissa Terry says. "A financial expert can provide personalized advice based on an individual's specific financial situation and goals and help them decide whether a reverse mortgage is right for them."
