Is a Reverse Mortgage a Good Idea? Pros, Cons & Alternatives

A reverse mortgage lets homeowners 62+ convert home equity into cash without selling:

• Receive money as lump sum, monthly payments, or line of credit
• No monthly mortgage payments required
• Loan comes due when you move, sell, or pass away
• Interest and fees add to the loan balance over time
• Home Equity Conversion Mortgage (HECM) is the FHA-insured version
• You keep the title and live in the home

These loans are expensive - often the most costly way to tap home equity:

• **Example**: On a $300,000 home, upfront costs alone can exceed $15,000
• Interest compounds on the growing balance
• A 10-year loan can cost more than the original amount borrowed

Reverse mortgages come with serious risks:

• **Property obligations continue**: You must pay taxes, insurance, HOA, maintenance
• **Foreclosure risk**: Falling behind on property expenses can trigger foreclosure
• **Equity erosion**: Loan balance grows, leaving less for heirs
• **Non-borrowing spouse risk**: If only one spouse is on the loan, the other could lose the home
• **Moving penalty**: Moving within 5 years makes the high costs not worthwhile
• **Medicaid complications**: Lump sum could affect eligibility
• **Scam vulnerability**: Predatory lenders target seniors

Despite the costs, reverse mortgages can be appropriate in specific situations:

• You plan to stay in the home for 10+ years
• You have significant home equity (50%+ of home value)
• You have no heirs or don't prioritize leaving the home
• You've exhausted other options
• Monthly cash flow is your primary need
• Both spouses are 62+ and on the loan

Before a reverse mortgage, explore these options:

• **Downsize**: Sell and move to smaller home, keep the equity
• **HELOC**: Home equity line with lower costs (requires payments)
• **Cash-out refinance**: Replace mortgage with larger one, lower fees than reverse
• **Rent a room**: Generate income without debt
• **Sell and rent**: Convert all equity to cash
• **Family loan**: Borrow from children against inheritance
• **Delay Social Security**: Increase guaranteed income instead

Reverse mortgages are a last resort, not a first choice:

• High costs make them expensive compared to alternatives
• Compound interest erodes equity rapidly
• Your home is your largest asset - use it wisely
• Get HUD-approved counseling before proceeding (required)
• Have an estate planning attorney review implications
• Consider your heirs and long-term care needs