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Reverse Mortgage: Pros and Cons

A reverse mortgage may offer the financial flexibility to help you live the retirement you envision—whether that means paying off medical bills, making home improvements, or simply freeing up extra cash. As with any major financial decision, it's important to weigh the benefits and risks. Below is a summary of the potential pros and cons of a reverse mortgage loan.

Many homeowners aged 62 and older with sufficient equity in their homes may be eligible for a Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage.¹ Seniors often choose a HECM loan because of its lifestyle-friendly features. Funds can be received as a lump-sum payment², monthly payments, a line of credit, or a combination of these options. Homeowners can remain in the comfort of their own home without making monthly mortgage payments.³

Pros of a Reverse Mortgage

• Receive funds as a lump sum², monthly payments, line of credit, or a combination
• Stay in your home without monthly mortgage payments³
• Proceeds are not taxed as income⁴ (though property taxes must still be paid)
• Heirs never repay more than the home’s value
• Remaining equity after loan repayment goes to your heirs

Cons of a Reverse Mortgage

• Loan balance increases over time
• Estate inheritance value may decrease as proceeds are used
• Fees may be higher than traditional mortgages
  • Initial FHA Mortgage Insurance Premium
  • Annual FHA Mortgage Insurance Premium
  • Loan origination fees
• While Social Security and Medicare eligibility are unaffected, needs-based programs like Medicaid may be impacted

To review your personalized loan options and determine if a HECM is right for you, speak with a qualified loan advisor or use a reverse mortgage calculator to explore your eligibility.

Footnotes

¹ Borrowers must also meet financial eligibility criteria as established by HUD.
² This disbursement option is only available for fixed-rate loans.
³ You must live in the home as your primary residence, continue to pay required property taxes and homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these obligations may result in loan default and foreclosure.
⁴ Generally, money received is not considered taxable income, though you must continue to pay property taxes. Consult a financial advisor or appropriate government agency for guidance on tax and benefit implications.