HELOC vs. reverse mortgage: Which will be better for seniors in 2026? Here’s what experts think.
The financial stress is mounting for many Americans, particularly seniors tied to limited budgets. With inflation and higher interest rates to contend with and finite resources to tap into, rising expenses for this demographic are often hard to deal with each day, let alone each year. While credit cards are an option, they are expensive and come with double-digit rates. For senior homeowners, a better option might be one tied to the property — like a home equity line of credit (HELOC) or reverse mortgage. Still, both leverage the equity in your home to help you make ends meet, so they will need to be approached strategically, especially in the developing economic climate of early 2026. To that end, below we’ll break down what you need to know about these two products and which might be better as we get further into 2026. HELOC vs. reverse mortgage: Which will be better for seniors in 2026? There is no uniform answer to this question, according to the experts we spoke to. Instead, the right choice will depend on your goals, budget and outlook for the 2026 market. Here’s how to better determine when one may be preferable: Why a HELOC could be better for seniors in 2026 One big reason a HELOC may be a better option for seniors this year is that it comes with lower upfront expenses. This can be helpful for those who don’t have a ton of cash — or can’t afford to cough up much for closing costs and fees in today’s rising-cost market. “A HELOC’s adjustable rate will generally be higher, but on a total fee basis, reverse mortgage fees will usually be higher than a HELOC,” says Jeff Taylor, board member for the Mortgage Bankers Association and founder/managing director at Mphasis Digital Risk. Pros say upfront origination fees for reverse mortgages can often range from between $2,000 and $6,000. There’s also an upfront mortgage insurance premium and ongoing mortgage insurance. HELOCs don’t have mortgage insurance and closing costs could be manageable. Another perk to using a HELOC in today’s environment comes down to projected Federal Reserve moves. Because most HELOCs have variable rates that are tied to the prime rate, any Fed rate cuts will directly impact rates on HELOCs, too. That means if you take one out today and the Fed cuts rates in March, your rate will likely adjust downward, reducing your interest costs and monthly payment in step. “HELOCs are typically variable-rate loans that adjust month-to-month,” says Jordan Del Palacio, loan partner at Churchill Mortgage. “So when the Federal Reserve raises and lowers rates, HELOCs follow the trends more closely.” According to the most recent projections from the Fed, most members expect to reduce rates at least a few more times this year. For HELOC borrowers, that would mean several drops in their HELOC’s rate as well. Why a reverse mortgage could be better for seniors in 2026 HELOCs aren’t always the right fit. For example, they come with monthly payments — something reverse mortgages don’t require. This can make the latter a smart choice for seniors on limited incomes. “The reason HELOC adjustable rates are generally higher is because HELOCs are tied to the prime rate, which today is 6.75%,” Taylor says. “Reverse mortgage adjustable rates are tied to the secured overnight financing rate, which today is around 3.7%.” Reverse mortgages can also be easier to qualify for in today’s climate. Unlike HELOCs, which require you to meet certain credit score and debt-to-income thresholds, reverse mortgage eligibility is largely based on equity. And today’s homeowners are sitting on a lot of that, with equity levels hitting a record high in 2025. “Overall, most seniors will qualify for reverse mortgages much easier than HELOCs,” says Eric Elkins, CEO of Double E Financial and host of “The One Percent Show” financial podcast. Pros say there can also be more protections with a reverse mortgage when compared to a HELOC — especially if the market takes a turn. For one, with a HELOC, lenders can freeze your credit line if home values fall, cutting off access to a much-needed financial safety net in hard times. With government-backed reverse mortgages, this isn’t a possibility. Reverse mortgages also come with the guarantee that you’ll never owe more than your home is worth. So even if your home does lose value and your reverse mortgage proceeds have exceeded that number, you (or your heirs) will never owe more than your home sells for. With long-term home price growth unknown, these protections can be a significant benefit for aging homeowners. Another point to consider: The economy could also worsen again. If this occurs, it could make it hard for seniors to afford payments on a HELOC, eventually leading to foreclosure. With reverse mortgages, no payments are required until the homeowner has died or until they elect to sell the property. “Reverse mortgages allow seniors to gain access to cash without the worry of monthly repayment obligations,” Elkins says. “This makes this tool more reliable during periods of economic downturns.” The bottom line HELOCs and reverse mortgages can both be smart options for the right borrowers. There are also additional products you can consider, like home equity loans or cash-out refinances. If you’re not sure which option is the best way to tap your home equity and borrow funds, talk to a financial advisor or mortgage professional. They can help point you in the right direction for your goals and budget and help answer any specific questions you may have. By Aly J Yale
How one 92-year-old found a way to stay in the family home she built
At 92, Helen thought she knew exactly what she wanted from the years ahead. She wanted to stay put. Not just in any house, but the house – the one she and her late husband built more than 40 years ago in Avondale Heights. The home where they raised their two children, where birthdays were celebrated, arguments were had, and memories were made. The home surrounded by friends, relatives and a support network all within walking distance. After losing her husband, Helen remained fiercely independent. She was still managing on her own, but her children could see the signs of ageing creeping in. Their worry wasn’t dramatic – it was practical. What would happen if she fell? What if she needed daily help? Could she really live alone indefinitely? Helen’s answer was clear: she wasn’t moving. Not to aged care. Not in with her children. She wanted to remain in her own home for as long as possible. A family challenge many older Americans face Helen’s situation will sound familiar to many families. She owned valuable assets – her family home and a former residence now rented out as an investment property – but her income was limited. The house itself also needed work. Built decades earlier, it wasn’t designed for ageing in place, and certainly not for accommodating a growing family. After many conversations, the family agreed on a plan. Helen’s son, along with his partner and three children, would move in with her. They would support her day-to-day needs and ensure she was never alone. But for that to work, the house needed a significant renovation – extra bedrooms, more living space, and modernized bathrooms and kitchen to make the home safer and more comfortable for Helen. There was also a deeper concern quietly sitting in the background: fairness. Helen was determined to treat both her children equally when it came time to distribute her estate. Considering a reverse mortgage The solution came in a form of a reverse mortgage– a financial option that allows older homeowners to access equity in their property without selling it or making regular repayments. In Helen’s case, a reverse mortgage of $400,000 was arranged. Around $300,000 was used to fund the renovation, transforming the home into a space that worked for three generations. The remaining $100,000 was set aside as a contingency – a buffer for unexpected health care needs and eventual funeral costs. Importantly, Helen retained ownership of her home and could continue living there for life. The family also agreed on how assets would be handled in the future. Helen’s son, who moved in and helped care for her, would eventually inherit the family home. Her daughter would inherit the investment property. It was a plan that felt fair, transparent and respectful of everyone involved. Peace of mind – for everyone For Helen, the biggest win was staying exactly where she wanted to be, surrounded by familiar faces and daily family life. For her children, there was reassurance that their mother was safe, supported and not isolated. And for the grandchildren, the arrangement created something rare: a genuine multi-generational household, with a grandmother at its heart. Reverse mortgages aren’t right for everyone, and they require careful consideration and independent advice. But for Helen and her family, it offered something invaluable – choice. Choice to stay. Choice to plan. And choice to age on her own terms, in the home she built from the ground up. Chris Moutzikis
Unexpected retirement expenses can strain senior homeowners
In any given year, 83% of retired households experience at least one unexpected expense Article Summary New research from Boston College finds 83% of retirees face unexpected annual costs, averaging about $6,000 a year when smoothed. Home repairs and health expenses dominate. Only 58% have enough cash to cover one year of costs, leaving many seniors vulnerable to debt, asset sales or early home equity use. AI Summary A new analysis from the Center for Retirement Research at Boston College finds that nearly all retirees face surprise costs each year — from roof repairs to dental work — and a large share lack the cash to absorb even one year of these expenses. The result can be financial stress, forced asset sales or tapping into home equity sooner than planned. The study draws on two decades of federal survey data covering households ages 65 and older who report being retired. Researchers found that unexpected costs are the norm, not the exception. In any given year, 83% of retired households experience at least one unexpected expense. These fall into three broad categories: Health and home costs are especially common, with each affecting well over half of retirees in a typical year. Age itself made little difference once households reached 65. Instead, income and other socioeconomic factors shaped how often expenses showed up — and how large they became. How much the surprises cost When an unexpected expense hits, the price tag can be steep. Among households that experience a shock, average annual costs total about $7,100. Home and other rainy-day repairs average roughly $3,300. Health-related costs run about $4,100. Family-related events can be even more expensive when they occur, the study found. For planning purposes, the researchers calculated a “smoothed” estimate — the average annual cost spread across all years of retirement, whether or not a shock occurs in a given year. That figure comes to about $6,000 a year for the typical retiree household. A key benchmark — 10% of income Put another way, unexpected expenses consume about 10% of annual income for the median retiree. That finding carries a clear message for older homeowners: Emergency savings don’t shrink at retirement — they shift. Over a 25-year retirement, average surprise costs add up to roughly 2.5 years’ worth of income. Not all of that needs to sit in a checking account, but some portion must be readily accessible without penalties or forced sales, researchers said. Who’s most prepared — and who isn’t Data shows that only 58% of older households have enough cash on hand to cover one average year of unexpected expenses. Another 16% could manage by also dipping into IRAs or 401(k)s. That leaves more than one-quarter of retirees unable to cover a single year of surprise costs even after exhausting both cash and retirement accounts. Lower-income households are especially vulnerable. Only about one-third have enough cash to manage a typical year. Similar gaps appear among Black and Hispanic households, single women and widows — groups that also tend to have less home equity and fewer financial backstops. For retirees who own their homes, inadequate emergency savings often leads to hard choices — such as taking on high-interest debt, delaying needed repairs, or tapping home equity earlier than planned through loans or reverse mortgages. The study’s bottom line is blunt: Unexpected expenses are a permanent feature of retirement, not a rare event. Without sufficient liquid savings, many senior homeowners risk turning routine surprises into long-term financial setbacks. By Jonathen Delozier
Unretirement and Financial Security: How Reverse Mortgages Can Help When Jobs Are Scarce
According to the Center for Retirement Research at Boston College, the concept of “unretirement” — retirees returning to work — has been a sign of economic vitality. When older workers reenter the labor force, it reflects strong job availability and confidence in the economy. Looking at recent data, the unretirement rate has dropped to 1.9%, far below the pre-pandemic levels of around 3%. This suggests that retirees who want to work are finding fewer opportunities, and thus could signal a cooling labor market. Why Are Retirees Going Back to Work? Many retirees seek employment for two primary reasons: But when job openings shrink, those who need extra income face a dilemma: how to maintain financial stability without returning to work? Enter Reverse Mortgages A reverse mortgage can be a powerful solution for retirees who are struggling to “unretire.” Here’s why: Why This Matters Now With fewer job opportunities for older workers, relying solely on employment to bridge financial gaps may not be realistic. Reverse mortgages offer an alternative that keeps retirees financially secure without the stress of job hunting in a tight labor market. Bottom Line If you are considering unretirement but finding the job market challenging, exploring a reverse mortgage could provide the financial breathing room you need — while enjoying retirement on your terms.
Will a reverse mortgage impact your Social Security or Medicare benefits?
If you’re considering a reverse mortgage, make sure you’re clear on how it could impact your crucial retirement benefits. / Credit: Bill Oxford/Getty Images Making ends meet isn’t always easy during retirement, especially in today’s unusual economic climate. Part of the issue is that seniors’ debt levels have increased threefold in the last 35 years, which is making it harder for retirees to fit their debt payments and essential expenses into their limited budgets. And, costs for essentials like housing, healthcare and groceries are continuing to rise due to stubborn inflation. At the same time, Social Security benefits rarely replace pre-retirement earnings, leaving many seniors with a monthly shortfall. That’s where reverse mortgages often enter the conversation. These loans, designed for homeowners age 62 and older, allow retirees to tap into their home equity without taking on traditional monthly payments. As a result, this type of borrowing can be a smart tool to consider for older adults who need access to more funding to pay bills, cover medical costs or simply enjoy a more comfortable retirement. But with Social Security and Medicare forming the backbone of retirement income and healthcare for most Americans, a common question borrowers have is whether taking out a reverse mortgage will affect those benefits. So, will taking out a reverse mortgage have an impact on Social Security and Medicare, or are seniors able to borrow without affecting these vital lifelines? The answer may surprise you. Will a reverse mortgage impact your Social Security benefits? The good news for seniors is that taking out a reverse mortgage does not directly reduce or interfere with Social Security retirement benefits. Social Security payments are calculated based on your earnings history, not your assets or the type of financial products you use in retirement. That means the money you receive from a reverse mortgage loan doesn’t alter the amount you’re entitled to each month. However, there are some important caveats. While standard Social Security benefits aren’t affected, certain need-based programs tied to Social Security, such as Supplemental Security Income (SSI), can be impacted. Because SSI eligibility is based on income and resources, large withdrawals from a reverse mortgage (especially if deposited into a bank account) could count toward your available assets, potentially reducing or eliminating your eligibililty For example, if you choose a lump-sum reverse mortgage payout and park the money in your checking account, it could push you over SSI’s strict asset limits. By contrast, receiving the funds in smaller monthly installments or as a line of credit may have less effect, provided the money is spent within the same month it’s received. Given the potential impacts — and the nuances of the program restrictions — consulting with a financial advisor before structuring the payout is essential if you rely on SSI in addition to Social Security retirement income. Will a reverse mortgage impact your Medicare benefits? When it comes to Medicare, the answer is equally straightforward: A reverse mortgage does not impact your Medicare eligibility or benefits. Medicare is not means-tested, which means your income and assets don’t determine whether you qualify. Whether you take out a reverse mortgage or not, your coverage for hospital visits (Part A), doctor visits (Part B) and prescription drugs (Part D) remains intact. That said, retirees should be aware of potential indirect consequences. While Medicare coverage itself isn’t reduced, the additional funds from a reverse mortgage might tempt some seniors to opt for private medical services, elective procedures or supplemental insurance that could stretch their finances further. And, it’s worth noting that reverse mortgage proceeds could indirectly affect eligibility for Medicaid, which is a separate, need-based program that helps with long-term care costs. Medicaid, unlike Medicare, does have strict income and asset thresholds, and keeping unused loan proceeds in your bank account could put you over those limits. This distinction is critical: Medicare won’t change, but if you rely on Medicaid for nursing home or assisted-living care, you’ll need to be mindful of how your reverse mortgage funds are managed and reported. The bottom line For most retirees, a reverse mortgage won’t jeopardize their Social Security or Medicare benefits. Your Social Security retirement check remains the same, and your Medicare coverage is unaffected, regardless of how you use your home equity. Where issues can arise, though, is with need-based programs like SSI or Medicaid, which do factor in available resources and income. If you’re considering a reverse mortgage, how you structure the loan, how you spend the proceeds and what other benefits you rely on matter significantly. So, be sure to discuss your plans with both a HUD-approved housing counselor and a financial advisor before moving forward, as doing so can help you avoid costly surprises. Story by Angelica Leicht
Will a reverse mortgage be worth opening in 2026?
Retirees are heading into 2026 with a lot on their minds. The cost of living may be rising more slowly than it was a few years ago, but higher prices have settled in for the long haul, and inflation has been ticking back up, too. As a result, everything from Medicare premiums to homeowners’ insurance is expected to inch upward next year, leaving many older Americans wondering how to balance stability and flexibility on a fixed income. At the same time, one major financial resource continues to stand out: home equity. After years of steady home appreciation, many homeowners over age 62 now hold more wealth in their homes than they do in their retirement accounts. And as economic conditions continue to shift, the idea of unlocking some of that equity with a reverse mortgage, which removes the monthly payment obligations of a traditional loan, has resurfaced as a serious consideration for homeowners who qualify. In turn, more retirees and near-retirees are asking the question of whether opening a reverse mortgage will be worth it in 2026. The answer isn’t simple, but the conditions shaping that decision are changing in ways that homeowners shouldn’t ignore. Below, we’ll detail what to consider right now. Will a reverse mortgage be worth opening in 2026? Whether a reverse mortgage makes sense for you in the coming year depends on your specific financial situation and goals. That said, it could be worth considering as part of a broader retirement plan in 2026. Here’s why: Rates may stabilize, keeping borrowing conditions more favorable Reverse mortgage interest rates can differ by lender, but they largely track broader rate trends. If current projections hold, rates will likely continue to gradually ease through the remainder of 2025 and may continue to do so into 2026. Even modestly lower rates can make a reverse mortgage more cost-effective over time, reducing the interest accumulation on the loan balance that will be due if the homeowner dies or the home is sold. For homeowners who have been waiting for a more favorable rate environment, next year could bring a window of opportunity. Rising home values could translate into higher borrowing limits Although price growth has cooled compared to the frenetic pace of 2021 and 2022, national home values remain historically high. If this trend persists, the amount of equity available to borrow through a reverse mortgage will likely remain substantial. That can lead to higher potential payouts, whether in lump sum, monthly installments or a line of credit, with the added benefit that the associated credit lines can grow over time. In other words: Strong equity plus a growing line of credit could offer retirees long-term financial flexibility next year, at a time when economic uncertainty remains common. Retirees may need new ways to supplement fixed incomes Even with Social Security cost-of-living adjustments, many retirees are feeling squeezed by rising insurance premiums, medical expenses and elevated consumer goods prices. A reverse mortgage can help create breathing room by supplementing monthly income without requiring loan payments. This alone may make the option more appealing next year, particularly for homeowners who have limited retirement savings but substantial equity. Reverse mortgages can fund major expenses without draining savings A growing number of retirees are using reverse mortgages strategically, not as emergency funding, but as part of a broader financial plan. Homeowners can use reverse mortgage funds to cover long-term care, pay off a traditional mortgage, fund home accessibility updates or delay tapping retirement accounts that are subject to market volatility, which could come in handy if the stock market continues to fluctuate in 2026. When used this way, a reverse mortgage becomes more of a planning tool than a last-ditch effort. Stronger consumer protections continue to make them safer Reverse mortgages used to be known for the risks that came with them, but over the past decade, reverse mortgages have undergone rule and policy updates aimed specifically at reducing that risk for borrowers. These protections include financial assessments, limits on upfront withdrawals, non-borrowing spouse safeguards and counseling requirements. And, these safeguards remain in place now, helping ensure borrowers fully understand the terms before opening a loan. For many homeowners, these improvements have made reverse mortgages feel more trustworthy and manageable, making them a smart option to consider in 2026. The bottom line A reverse mortgage won’t be the right choice for every retiree in 2026, but for homeowners with substantial equity, limited liquid assets and a desire to remain in their homes, these borrowing tools can serve as a valuable financial tool. Still, you’ll want to approach the decision with clear eyes about both the benefits and the costs, have an understanding how it fits into your broader retirement strategy and ensure that you’re not using it to solve a financial problem that might be better addressed through other means. By Angelica Leicht
Home equity: A powerful tool for retirement security
In today’s retirement landscape, home equity is more than just a number on a financial plan. It’s a meaningful resource for baby boomers looking to strengthen their financial future. For homeowners facing a savings shortfall, tapping into home equity can be a crucial strategy to help close retirement income gaps. It’s an important option to consider, especially since new Vanguard research finds that only about 40% of baby boomers nearing retirement are expected to have enough wealth to maintain their lifestyle in retirement. How home equity can help cover a savings shortfall Vanguard research shows that outside the top 30% of income earners, many baby boomers are likely to fall short of their retirement savings goals. Part of the reason for the inadequate savings is that the transition from defined benefit (DB) to defined contribution (DC) retirement plans occurred during their peak earning years, such that they did not fully benefit from either system. A typical baby boomer earning $56,000 is projected to retire with $120,000 in net worth excluding home equity and face an annual spending shortfall of $9,000, or about 24% less than what’s needed to maintain their lifestyle. Faced with this challenge, baby boomers may need to consider creative solutions to bridge the gap. One important but often overlooked option is unlocking home equity—turning housing wealth into income to help close the spending gap. For many, home equity is not just a safety net. It’s a powerful financial lever for the 85% of baby boomers who own their own homes. If retirees were to extract the full value of their home equity by selling their home and renting in retirement—an option that may be hard to fathom but could be necessary to narrow the funding gap—Vanguard estimates that retirement readiness among baby boomers would increase by 20 percentage points, with 60% on track to maintain their lifestyle. This improvement is especially significant for lower-income baby boomers, whose wealth is often concentrated in their homes rather than in retirement savings accounts. For instance, those in the 15th percentile of income (earning $22,000 per year) have 3.8 times their annual income locked away in home equity. Compare that to those in the 95th percentile of income (earning $196,000 per year), who have 1.1 times their annual income in home equity. Unlocking home equity significantly improves retirement outcomes for baby boomers, particularly in lower income brackets Notes: Circles show the share of the population in each group whose projected sustainable income is expected to exceed their retirement spending needs under each scenario. In the “incorporating home equity” scenario, we assume workers convert their home equity into investable assets by selling their home to rent and investing the proceeds. Per capita income ranges are as follows: 0–29th percentiles, $6,000–$37,000; 30th–69th percentiles, $38,000–$86,000; 70th–89th percentiles, $87,000–$148,000; 90th–99th percentiles, $149,000–$436,000. Figures are based on 2022 dollars and rounded to the nearest thousand. Sources: Vanguard calculations, based on data from the Survey of Consumer Finances, the Health and Retirement Study, and the Social Security Administration. “Home equity, if used wisely to fund retirement, can make a meaningful difference for retirees who are worried about making ends meet,” said Kelly Hahn, Vanguard’s head of retirement research. “It’s often the largest asset people have and tapping it can help fill important gaps in retirement income.” Home prices climbed 31% in real terms from 2019 to 2024, making the idea of utilizing home equity more attractive than ever. Of course, local market conditions matter, and not every region has seen the same gains. Before deciding whether and how to use home equity, it’s important to evaluate potential risks and personal considerations. Weighing the risks and trade-offs Unlocking home equity can offer meaningful benefits in retirement, but it’s not without trade-offs. Both financial and personal factors warrant careful consideration, including: “For many retirees, home equity can help bridge income gaps—but it’s not just about the numbers,” said Hahn. “You have to think about what’s happening in the housing market, your own needs, and how attached you are to your home.” Given these considerations, retirees have several options for putting home equity to work to support their retirement security. Strategies for tapping home equity in retirement Retirees today have a range of approaches to convert home equity into retirement income. Each offers distinct benefits and considerations, so it’s important to identify the strategy that best fits one’s individual circumstances and financial goals. An expert can help retirees think through these options. Possible approaches include: When chosen thoughtfully, these strategies can help many baby boomers address retirement income gaps and achieve greater financial security. Turning home equity into lasting security “Home equity isn’t just a backup plan. It can be the difference between falling short and achieving long-term financial stability for baby boomers facing a retirement savings shortfall,” said Hahn. “With careful planning and a clear understanding of the options and potential risks, leveraging a home’s value can help transform hard-earned assets into a more comfortable retirement.” Kelly Hahn Vanguard Head of Retirement Research
Can retirees use a reverse mortgage to buy a home?
For many older Americans, retirement isn’t about staying put in their homes. It’s a time for making a meaningful change instead. Some retirees want to downsize their home into a more manageable space, for example, while others dream of relocating closer to family or settling into a sunny retirement community. But with mortgage rates still hovering above 6% despite recent rate drops, and retirement income typically fixed, buying a new home later in life can feel like an uphill climb. The challenge of qualifying for a new loan in your 60s or 70s can make buying a home in retirement feel complicated, or even out of reach. So, while the desire to move during retirement may be clear for some retirees, the logistics often aren’t. Today’s homeowners hold record levels of home equity, though, with the average homeowner holding over $300,000 in home equity currently — and some senior homeowners, especially those who’ve been in their homes for decades, may have access to a lot more. And, seniors have one unique home equity option available to them: a reverse mortgage, which allows retirees to borrow against their home equity without the burden of monthly payments. A reverse mortgage typically requires you to stay in your home over the long term, though, so can retirees use this borrowing option to buy a new property? Below, we’ll detail what to know. Can retirees use a reverse mortgage to buy a home? In general, yes, retirees can use a reverse mortgage to buy a home, but they can’t use just any reverse mortgage to do so. There’s a specific type of reverse mortgage, called a HECM for Purchase loan, that can be used to buy a primary residence. Instead of taking out a traditional mortgage and making monthly payments, borrowers simply use the proceeds from a reverse mortgage (combined with a sizable down payment) to purchase the home. This option can be particularly appealing in today’s rate environment, where conventional mortgage payments can stretch retirement budgets. But while a HECM for Purchase loan can offer the financial flexibility that senior homebuyers are looking for, it also comes with its own eligibility rules, upfront costs and ongoing responsibilities — meaning it’s not for everyone. Here’s how it works: For example, say you’re 72 and want to buy a $400,000 home. You might need to put down about $180,000 to $248,000. The reverse mortgage would finance the remainder, and you wouldn’t owe monthly payments, freeing up retirement income for other expenses. This approach can be particularly useful for retirees who are “house rich but cash limited.” By selling their current home, they can use some of the sale proceeds as the down payment on a new property, while preserving more liquid assets for living expenses. Who qualifies for a HECM for purchase loan? Not every retiree will qualify for this type of loan. The Federal Housing Administration (FHA) sets strict rules to protect both borrowers and lenders. To be eligible, you generally must: The bottom line Retirees can use a reverse mortgage to buy a home, but they typically have to use a specific type of reverse mortgage to do so. For some, a HECM for Purchase loan can be a powerful financial tool. It’s not a one-size-fits-all solution, though. The required down payment, upfront mortgage insurance premiums and long-term responsibilities mean it’s generally best suited for retirees who plan to stay in the home for the long haul and can keep up with property costs. So, before moving forward, it’s important to consult with a HUD-approved housing counselor to make sure this strategy aligns with your retirement goals. With careful planning, though, a reverse mortgage for purchase can offer both housing stability and financial flexibility in your later years. By Angelica Leicht
How much equity do you need for a reverse mortgage?
For many older homeowners, their home is their largest asset — and in many cases, it’s also their most reliable source of financial stability in retirement. Housing prices have increased dramatically over the past decade, after all, with home values ticking up swiftly over the past few years in particular. As a result, the average homeowner is sitting on over $300,000 in equity right now, and senior homeowners may have even more equity than the average after decades of paying down their mortgage loans. As a result, tapping into home equity through a reverse mortgage has become an increasingly attractive way for seniors to boost their retirement income without having to sell or downsize their homes. Interest in reverse mortgages has also surged as ongoing inflation pressures have stretched retiree budgets and traditional savings tools have struggled to keep up. And with other types of borrowing rates still elevated, it can make sense for retirees to turn to reverse mortgages instead of traditional loans or home equity lines of credit (HELOCs), which require monthly payments. But not every senior homeowner will automatically qualify for a reverse mortgage loan. Lenders have specific rules about how much equity you must have before you can borrow, after all, and these requirements can also impact how much money you can tap into. So how much equity is required for a reverse mortgage, and what should you do if you fall short? Below, we’ll break down what to know. How much equity do you need for a reverse mortgage? To qualify for a reverse mortgage — specifically, a Home Equity Conversion Mortgage (HECM) backed by the Federal Housing Administration (FHA), which is the most common type of reverse mortgage — most lenders will require you to have at least 50% to 60% equity in your home. That means your outstanding mortgage balance should be no more than about 40% to 50% of your home’s appraised value. For example, if your home is worth $400,000, you’d typically need to owe $160,000 or less on your existing mortgage to qualify for this type of loan. If you owe more than that, you’d likely need to pay the difference at closing, either with savings or other funds, to meet the program’s requirements. That said, this isn’t a set rule across the board. The FHA actually doesn’t specify an exact equity percentage requirement for HECMs. Instead, the focus is on ensuring you can cover ongoing obligations like property taxes, insurance and maintenance. So, in theory, you could potentially find a lender requiring less than 50% to 60% home equity, but that likely won’t be the standard. It’s worth noting, though, that meeting the 50% to 60% home equity threshold to qualify doesn’t mean you can borrow that much with a reverse mortgage. The amount you can actually borrow with this type of loan is dependent on three main factors: What to do if you don’t have enough equity for a reverse mortgage Coming up short on equity doesn’t mean your options are completely off the table. There are several strategies homeowners can use if they want to pursue a reverse mortgage but don’t yet meet the 50% to 60% equity threshold. Pay down your existing mortgage If you have savings or other assets, applying them toward your remaining mortgage balance could help you hit the required equity level for a reverse mortgage. For instance, if your home is worth $400,000 and you owe $220,000, paying off $60,000 could bring your balance down to $160,000, which is enough to qualify with many lenders. Wait until you’ve built more equity naturally If time is on your side, continuing to make mortgage payments and allowing your home value to appreciate can push you past the required equity line. This may be a slower path, but for homeowners who are not in immediate need of cash, taking time to boost equity can be a practical solution. Consider downsizing If your current home’s equity is locked up in a high mortgage balance, selling and purchasing a less expensive property could be a workaround. With a HECM for Purchase, for example, you can use the proceeds from your home sale to buy a new, lower-priced home and fund the difference with a reverse mortgage, all in a single transaction. Explore alternative financing options If building equity isn’t realistic, other financial tools might be a better fit. A home equity loan or HELOC could provide access to funds, though they come with monthly repayment obligations. Alternatively, a personal loan or retirement account withdrawal might be considered, depending on your overall financial situation. The bottom line Reverse mortgages can be powerful tools for tapping into home equity during retirement, but they’re not one-size-fits-all. You typically need to have at least half of your home’s value in equity to qualify, and how much you can ultimately borrow depends on your age, interest rates and your home’s value. If you’re not quite there yet, strategic steps like paying down your mortgage balance, waiting to build equity or exploring downsizing can help bridge the gap. And for some homeowners, alternative financing options may make more sense. By Angelica Leicht
The Most Overlooked Retirement Conversation
The recent InvestmentNews column, “Advisors see long-term care as critical piece of retirement planning,” makes a strong case for treating long-term care (LTC) as a central, not peripheral, retirement concern. With healthcare inflation rising faster than general inflation—hospital and outpatient services alone climbed 5.3% year over year—addressing LTC sooner rather than later is simply prudent. A Retiree’s Largest Asset Isn’t Off-Limits The article stands out in reframing LTC as a financial reality, not as a mere possibility. With the average cost of a semi-private nursing home now topping $100,000 annually in many regions, a multi-year stay can be devastating for those who haven’t prepared. The column also underscores the trade-offs between strategies. Traditional LTC insurance can be costly and carries the “use it or lose it” stigma, though policies are more affordable when purchased earlier in life. Hybrid life insurance with LTC riders offers a more flexible “use it or return it” design. Importantly, the piece also acknowledges that home equity—often a retiree’s largest asset—can and should be part of the conversation. Reverse mortgages, long overlooked, may help fund care directly or cover insurance premiums, broadening the advisor’s toolkit. What’s Missing Still, some important gaps remain. Reverse mortgages are noted, but with little discussion of risks, such as the loan becoming due if the last borrower must permanently leave the home to receive care. Longevity risk is also underplayed. The Department of Health and Human Services estimates that 70% of Americans turning 65 will need some form of long-term care, and 20% will require it for more than five years. These figures show LTC isn’t just a budget line—it’s a widespread and often prolonged risk. The article also sidesteps stress testing. What if LTC inflation runs at 6% instead of 3%? How resilient are different funding strategies under that pressure? Exploring these scenarios would help advisors prepare clients for harsher realities. Funding the Probability For many seniors, the real danger lies in needing care without the liquid resources to pay for it. Those without adequate savings, annuity income, or insurance may be forced to draw down assets rapidly, sell their home, or qualify for Medicaid only after depleting their estate. In such cases, families often shoulder the financial and emotional strain. A Solution, Not a Cure-All This is where reverse mortgages can play a role. By unlocking home equity without adding a monthly payment, they allow retirees to fund in-home care, assisted living, or nursing services while staying in their home. The flexibility is valuable, especially when compared to the burden of new debt. That said, trade-offs exist: heirs inherit less equity, and costs such as interest accrual and insurance premiums must be considered. And while a reverse mortgage won’t cover every possible expense—a multi-year nursing stay can quickly outstrip available funds—it can provide meaningful support when combined with insurance, savings, and annuity income. Conclusion The Investment News piece is a timely reminder that rising healthcare costs make LTC planning non-negotiable. For seniors, incorporating home equity through a reverse mortgage can ease the burden of care without increasing their monthly obligations. Used wisely, it can complement other strategies and mean the difference between scrambling in crisis and aging with greater dignity and financial security. Have you considered addressing long-term care when meeting with homeowners? If not, why? Broaching the conversation could open their eyes to potential care expenses they may well not be able to afford. [Investment News] Advisors see long-term care as critical piece of retirement planning By Shannon Hicks