3 ways a reverse mortgage can supplement your Social Security
Retirement planning has become increasingly complex as Americans face longer lifespans, rising healthcare costs and concerns about Social Security’s long-term sustainability. While Social Security remains a cornerstone of retirement income for most Americans, the average monthly benefit, which is currently $1,976, often falls short of covering all living expenses. As a result, many retirees find themselves in a financial squeeze, including those who are “house rich but cash poor” – meaning those who are sitting on a significant amount of home equity but struggling with monthly cash flow. For decades, the conventional wisdom regarding homeownership was simple: Pay off your mortgage before retirement and live debt-free in your golden years. However, this approach can leave retirees with substantial wealth tied up in their homes while facing monthly budget constraints, especially in today’s inflationary environment, where the prices of essentials are growing. And, the irony of that is stark. You might own a $400,000 home outright but still worry about affording groceries or prescription medications on a fixed income. This is where reverse mortgages enter the conversation as a potential game-changer. With a reverse mortgage, retirees have the option to convert their home’s equity into usable income while continuing to live in the home. For homeowners aged 62 and older, this can bridge the gap between Social Security benefits and the lifestyle they want to maintain in retirement. But how does that actually work? 3 ways a reverse mortgage can supplement your Social Security If your finances are stretched thin during retirement, here’s how opting for a reverse mortgage can help supplement the money from your Social Security benefits: By turning your home equity into a monthly income stream One option retirees have when taking out a reverse mortgage is to receive regular monthly payments rather than a lump sum loan or a line of credit they can draw from. By opting for monthly payments, retirees are essentially able to turn part of their home equity into a steady cash flow, much like creating a second paycheck with their home’s equity. For retirees who are relying solely on Social Security, this can provide much-needed breathing room in the budget. For example, you might use the extra income to cover everyday expenses like food, gas and utility bills or even to enjoy small luxuries like travel or hobbies that make retirement more fulfilling. And, unlike a traditional mortgage or home equity loan, you won’t be required to make monthly repayments on the money you receive from your reverse mortgage loan. As long as you stay in your home, keep up with property taxes and insurance, and maintain the property, repayment isn’t due until you move out, sell the home or die. By allowing you to access cash for health care and unexpected costs Major medical issues tend to become more common and more expensive as we age, and as a result, medical expenses are one of the biggest financial challenges retirees face. While Medicare and Medicare supplemental insurance can help offset those expenses, it doesn’t cover everything, and when you’re reliant primarily on your Social Security benefits, all it takes is an unexpected hospital visit or prescription drug bill to throw off your budget. A reverse mortgage can help by giving you access to a lump sum of cash or a line of credit you can tap when needed for these types of costs. This can be especially valuable for covering out-of-pocket long-term care costs, in-home care or home modifications, like installing a stairlift or walk-in shower, that make it easier to age in place. Having these funds available could also help you avoid draining your retirement savings or turning to high-rate credit cards when surprise medical expenses pop up. By allowing you to delay Social Security and claim bigger benefits If you haven’t yet started collecting Social Security, using a reverse mortgage could allow you to delay claiming your benefits. For every year you postpone Social Security past your full retirement age (up to age 70), your benefits increase by approximately 8%. So, if you’re 62 or older and considering early retirement, you could use reverse mortgage payments to cover living expenses while letting your Social Security benefits grow. This strategy can result in significantly higher lifetime Social Security payments, potentially allowing you to collect 30% to 40% more than if you claimed your benefits at 62. This strategy isn’t for everyone, of course, but it could make sense if you want to lock in a higher Social Security payment for the rest of your life — and you’re in good health and expect to live well into your 80s or beyond. The bottom line A reverse mortgage can be a powerful way to supplement Social Security income and give your retirement budget a little more flexibility. Whether you’re looking to cover essential expenses, pay for medical care or want to strategically delay claiming Social Security, tapping into your home equity might help you live more comfortably in retirement. But like any financial decision, it’s crucial to understand how a reverse mortgage works and make sure this strategy aligns with your goals before making any decision. Done thoughtfully, though, a reverse mortgage could help you make the most of both your home and your hard-earned benefits.
3 ways seniors can supplement their Social Security now
There are multiple ways to supplement Social Security income that seniors may want to investigate right now. Recent news that Social Security’s insolvency could hit a year earlier than initially expected wasn’t exactly welcome by seniors reliant upon the funds the service provides. Combined with ongoing issues surrounding Social Security overpayments and the potential for those disbursed funds to be clawed back, seniors may find themselves in a precarious financial position this July. Retirement savings and pensions, already increasingly rare, only go so far to help make ends meet. And if the safety net Social Security has been providing is starting to deteriorate, these seniors may find themselves looking for alternative supplemental income. Fortunately, there are multiple avenues worth exploring, some of which are easily overlooked at first glance but which can still provide valuable and consistent income. Still, with financial resources limited, it makes sense for seniors to take a strategic and thorough approach before taking their next step. That starts with exploring the three sources below that could supplement their Social Security funds now. 3 ways seniors can supplement their Social Security now Here are three ways seniors could start boosting their monthly income right now: Reverse mortgages A reverse mortgage is one of the better and more effective ways to supplement your Social Security now, as the funds come directly from the house you’ve paid into. Only available for homeowners who are age 62 or older, reverse mortgages provide monthly payments to owners, deducted from their home equity. Those payments will only need to be paid back, however, when the home is sold or in the event of the death of the homeowner. Still, if you’re looking for a way to secure reliable income and don’t want to have to borrow to get it (like you would with a home equity loan), a reverse mortgage could make sense for you now. Annuities If you need reliable income, it may feel counterintuitive to spend a large portion of the money you have saved on anything extra right now. But an annuity could be worth it. In exchange for providing a lump sum of money to an annuity provider, you’ll then receive monthly payments for life in return. The higher an annuity you purchase, the greater your payments will be. But the real benefit here lies in the reliability and security an annuity provides, as it can be counted on regardless of what happens in the economy and long past your initial purchase amount has been exhausted. Personal loans Arguably the least favorable of the three options on this list, a personal loan can still help fill the financial gap that’s been recently uncovered by Social Security shortfalls. This will require taking on additional debt and interest rates here, around 12%, are markedly higher than they were at the start of the decade. But you don’t necessarily have to use all of the personal loan funds you’re provided, as they can often serve as an emergency fund where needed. And with alternatives like credit cards accompanied by interest rates just under a recent record high, this can be one of the less expensive ways to supplement your income right now. The bottom line Concerns over Social Security shortfalls may not be resolved overnight but by exploring their alternative funding sources, seniors can better determine their next steps. Reverse mortgages, annuities and personal loans can all help, perhaps to a considerable degree. So take the time to research all three right now and remember that you don’t necessarily need a large amount of money to help as just enough financing to cover any gaps left over by Social Security will likely suffice. Story by Matt Richardson
Reverse Mortgage Pros and Cons: A Balanced View
Considering a reverse mortgage? Understand the pros and cons to make the right decision for your future. Reverse Mortgage Pros and Cons It’s important to note a reverse mortgage is still a loan, and the balance will eventually be due. Key Takeaways Reverse mortgages are specialized home equity loans for homeowners age 62 and up. A reverse mortgage gets its name because instead of the homeowner making payments to a lender, the lender makes payments to the homeowner. Homeowners who take out a reverse mortgage loan can stay in their homes and don’t have to make payments on the loan until they permanently leave the home – whether they sell it, move out or pass away. Reverse Mortgage Pros Increased Security in Retirement Reverse mortgages can trade equity for cash for homeowners who have more home equity than cash. “The most typical use is to pay off existing mortgages and other debt to alleviate the burden of having to make monthly payments on those existing loans,” says Steve Irwin, president of the National Reverse Mortgage Lenders Association. “A reverse mortgage can provide supplementary cash flows or create a standby cash reserve to potentially cover health care costs, major purchases, lifestyle enhancements, in-home care or in-home modifications so those borrowers can effectively age in place.” Maximum Flexibility for Many Needs You can choose to take your loan proceeds as a lump sum, monthly payments for a specific term, monthly payments for as long as you remain in the home or as a line of credit to protect you from financial emergencies. You can even combine these options for a truly custom loan. Stay in Your Home Your home may be the most valuable thing you own and your biggest source of wealth. But not everyone wants to sell their home and move in order to cash out. With a reverse mortgage, you can stay in your home as long as you like, and you may even be able to use reverse mortgage income to pay for in-home care instead of moving to a facility. Tax-Free Income Reverse mortgage payouts are not considered income by the IRS. So even if it feels like you’re getting income each month, you won’t be taxed on it. No Minimum Credit Score or Income Requirement Underwriting guidelines for reverse mortgages are not nearly as strict as those for traditional mortgages or home equity loans. Mainly, reverse mortgage lenders want to be sure that you’ll pay your property taxes and homeowners insurance premiums and that you won’t incur tax liens on the home. Even shaky borrowers may qualify for a reverse mortgage by allowing some of their loan proceeds to be held back and used for property-related expenses. Nonrecourse Loan Reverse borrowers can choose to receive monthly payments for life (or as long as they live in their home). And they’re not required to make payments on the mortgage balance, so it grows over time. But no matter how much they owe, borrowers cannot be required to repay more than the property is worth. Neither can their heirs. There are several ways you or your heirs can pay off a reverse mortgage balance: What this means is you won’t outlive your reverse mortgage income if you receive payments for life. Cons of Reverse Mortgages Balance Increases Over Time “The balance of a reverse mortgage increases over time as interest and fees accumulate,” says Valerie Saunders, president of the National Association of Mortgage Brokers. “This growing debt can significantly reduce the homeowner’s equity in the property in some cases. As the loan balance increases, the amount of equity left in the home decreases, potentially leaving less for heirs. Heirs may need to sell the home to repay the loan.” More Expensive Like other mortgages, reverse mortgages come with loan fees and closing costs. However, the charges for reverse mortgages are generally higher than those of traditional home loans – in part because they require mortgage insurance and because their balance grows over time. Can Impact Eligibility for Low-Income Programs Programs like Medicaid and Supplemental Security Income require your income and/or savings to be under certain thresholds. You might accidentally exceed those limits if you take your loans proceeds the wrong way and push your bank account balances too high. Foreclosure Is Possible Reverse mortgage foreclosure may be on the table. If you leave home for more than 12 months for health or lifestyle reasons, your lender may decide that you’re not using the home as a primary residence and accelerate your loan – meaning you have to pay it off and can no longer draw income from it. Your lender may also start foreclosure proceedings if you fail to pay property taxes, keep up your homeowners insurance or maintain the property in good condition. When Is a Reverse Mortgage a Good Idea? Reverse mortgages aren’t for everyone, but they can be useful in the right circumstances. A reverse mortgage might make sense if you: Before you apply for a reverse mortgage, make sure you understand the costs and have considered alternatives. A U.S. Department of Housing and Urban Development counselor can offer insight and help you make sense of a reverse mortgage’s terms. Also consider discussing your plans with any family members who may be affected by your decision. When Is a Reverse Mortgage Wrong for You? Up-front reverse mortgage costs are not small, so you want to avoid borrowing with one if it’s not a good long-term solution. A reverse mortgage might be a bad idea if: If you decide to move closer to your grandchildren, leave the country or go into assisted living, you’ll have to repay the reverse mortgage. You might be better off renting your home out while you’re gone and using the income to fund your travel or facility fees. Reverse Mortgage Alternatives If you’re not sure a reverse mortgage is right for you, consider these alternatives: If you decide to proceed with a reverse mortgage, carefully review the loan terms, including payout options and repayment rules. Plan
Home Equity: A Bird in the Hand is Better than…
A New Conversation About Home Equity Since the onset of the COVID-19 pandemic, home values in the U.S. have surged. From 2020 to 2024, rural home prices rose by 23%, outpacing the 18% rise seen in urban areas. This shift was fueled by a “race for space” as families sought out larger homes and greener surroundings. According to the Case-Shiller National Home Price Index, overall U.S. home prices have jumped approximately 47.1% since early 2020—eclipsing even the housing booms of the 1990s and the early 2000s before the Great Recession. As a result, most homeowners have accumulated significant equity. In fact, as of Q4 2024, Americans aged 62 and older collectively held nearly $13.95 trillion in home equity. Yet, for many older adults, this has led to an uncomfortable financial position: being house-rich, but cash-poor. Others may find themselves blindsided by a financial crisis in the coming years and have little recourse without tapping into their retirement portfolio, which could reduce their monthly income. In this column, we’ll explore the upside and the often-overlooked drawbacks of rapidly appreciating home values—and how these factors are shaping financial conversations with older homeowners. The Hidden Costs of Appreciation Rising home equity may seem like a blessing, but it often comes with hidden burdens. Chief among them are increased property taxes and soaring homeowners’ insurance premiums. Take California, for example. State Farm recently imposed a 17% rate hike on homeowners’ insurance, with an additional 11% increase pending. If approved, this would result in a staggering 28% increase. For seniors on a fixed income, these mounting expenses can put pressure on budgets and force difficult decisions. Some older homeowners who own their home outright now have property tax bills that exceed their previous mortgage payments. Home Equity is Just a Number until… Home equity is not a liquid asset—it’s just a number on paper unless accessed through a refinance, home sale, or reverse mortgage. Worse yet, it can shrink overnight. In March 2025, home prices across the 20 largest U.S. metro areas dipped by 0.12%, marking the first monthly decline in over two years. While minor, this drop highlights the reality that real estate markets are cyclical. Seniors counting on their equity as a safety net may find themselves in trouble if home values decline or if they can’t qualify for a loan when they finally need access to that wealth. Tapping Equity Without the Burden One potential solution for older homeowners is a Home Equity Conversion Mortgage (HECM). As reverse mortgage professionals know, a HECM converts a portion of a borrower’s home value into cash or a growing line of credit, without required monthly mortgage payments. Of course, HECMs do have significant upfront costs, including a 2% initial mortgage insurance premium (MIP) based on the home’s appraised value, capped by the FHA’s lending limit. For a home valued at $1,209,750 or more, that cost alone can exceed $24,000. Even so, a HECM can offer significant long-term value, especially through its line of credit feature, which grows each month the funds remain unused, at a rate tied to the current note rate plus 0.5% annual MIP. The Cost of Waiting: One Example Consider this scenario: a 72-year-old homeowner with a fully paid-off home that’s worth $600,000 today. If their home value dropped by 25% in five years, that home would be worth $450,000: that’s a $150,000 ‘loss’ in equity that may never be recovered in that homeowner’s lifetime. But if that same homeowner had secured a HECM when the home was worth $600,000, they might have locked in access to a $200,000 line of credit. Over time, that unused credit line would continue to grow, regardless of future home price drops. Yes, there are costs. Let’s assume the initial loan balance (UPB) was $16,500. At an average 5% interest rate, plus the 0.5% annual MIP, in five years the loan balance would grow to about $22,000 a total increase of just over $5,200. They in essence preserved access to $150,000 in equity that they otherwise may have lost while securing a line of credit that has grown to over $250,000 over five years. The HECM: Flexibility Over Fragility Being house-rich doesn’t always make one financially secure, especially for older adults facing rising costs, uncertain markets, and limited income. While reverse mortgages aren’t for everyone, tools like the HECM can offer a powerful way to preserve access to home equity without sacrificing ownership or taking on new monthly mortgage payments. In the end, the real question isn’t whether a home is valuable, but whether its value can be used when it matters most. By: Shannon Hicks