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
Skyrocketing Property Taxes are Pushing Seniors to the Brink
Across the nation, older homeowners are being pushed out of homes they’ve lived in for decades, not because they’ve missed a mortgage payment, but because the land beneath their feet has become too “valuable” to afford. As property taxes skyrocket, many fixed-income seniors find themselves facing an unthinkable reality: the risk of foreclosure or homelessness, even when they own their homes free and clear. Take Greg Romine, a homeowner in Cincinnati’s Bond Hill neighborhood. In just two years, his property tax bill jumped from $1,400 to nearly $4,200. “I’ve just been so depressed right about now,” Romine told local reporters. “It’s just unbelievable. It’s like, you can’t stay where you want to be comfortable anymore.” Romine’s story isn’t unique. From Montana to Georgia, Indiana, and beyond, communities are watching long-time residents get priced out of their neighborhoods—victims of a property tax system that punishes people for staying put. In Atlanta, the city recently expanded its Anti-Displacement Tax Fund to help low-income homeowners over 60, but even that effort is struggling to keep up with the pace of gentrification and speculative real estate investment. What makes this crisis especially cruel is that most of these seniors did everything right. They bought modest homes, paid off their mortgages, and planned to age in place. But they’re now being penalized by a tax system that ties liability to market value—not income, not age, not ability to pay. A Potential Lifeline for At-Risk Homeowners A reverse mortgage could provide a crucial financial lifeline for older homeowners who struggling to survive what many see as a government money grab. Older homeowners with substantial equity could get a Home Equity Conversion Mortgage and use the loan’s line of credit to pay annual property taxes. While the upfront costs of a reverse mortgage may be significant, they pale in comparison to the potential loss of a lifetime of equity. A Broken Tax System While reverse mortgages can be a lifeline, the deeper issue is systemic. Property tax laws that treat a retired teacher and a tech investor the same, simply because they live on the same block, are inherently unjust. Tax policy should account for income, age, and length of ownership, not just speculative market growth. Programs like homestead exemptions or tax deferrals are steps in the right direction, but they’re often fragmented and underfunded. What’s needed is bold, structural reform. Seniors should not be punished for staying in homes they’ve built, neighborhoods they’ve shaped, and communities they’ve supported for generations. It is morally indefensible that someone can spend 30 or 40 years paying off their home, doing everything the American Dream told them to do, only to lose it because of property taxes they can no longer afford. Until that injustice is resolved, the reverse mortgage may remain one of the limited viable solutions available to protect aging homeowners from displacement—and from a system that too often seems eager to seize their home. By Shannon Hicks
With inflation taking its toll, reverse mortgages should be part of the conversation
Misconceptions often can occur when talking about reverse mortgages Headlines like these aren’t welcome news to anyone: “Rising Prices: Which Goods and Services are Driving Inflation?” or “U.S. Inflation Picked Up in December.” For older Americans on fixed incomes, such articles can be particularly worrying. Many seniors desperately want to remain in their homes as they age, but that becomes increasingly difficult when property taxes, borrowing costs and consumer prices remain high. In recent years, reverse mortgages have emerged as a potentially viable solution for many seniors grappling with this issue. Unfortunately, as the profile of reverse mortgages has grown, so have the myths and misconceptions about them. “While reverse mortgages aren’t ideal for everyone, they offer genuine benefits for many seniors and can help eliminate some of the most prevalent anxieties around aging in place.” While reverse mortgages aren’t ideal for everyone, they offer genuine benefits for many seniors and can help eliminate some of the most prevalent anxieties around aging in place. So, this seems like a good time to analyze what reverse mortgages are and separate some of the myths from reality. Supplemental income Reverse mortgages are a special type of loan for homeowners ages 62 and older. There are different types with varying structures, but reverse mortgages allow seniors to convert part of their home’s equity into cash, which helps retirees supplement their income and more comfortably age in place. Unlike most loans, with a reverse mortgage, there are no required monthly mortgage payments as long as homeowners live in the home. Borrowers also retain the title to their homes, and they can receive the funds as a lump sum, in monthly installments, as a line of credit or a combination of these. The loan is repaid when the home is sold, or the homeowner moves out or a death occurs. If the sale proceeds don’t cover the loan amount, the Federal Housing Administration insurance covers the difference, so no debt is passed to heirs. Another helpful aspect of a reverse mortgage is that there aren’t a lot of requirements to qualify. For couples, the age of the youngest borrower is used for the age requirement. Borrowers must maintain the property and cover any associated fees, along with ongoing costs like taxes, insurance and possibly homeowners association fees. The property must be the primary residence, either owned outright or with significant equity (typically at least 50%). The Department of Housing and Urban Development mandates independent counseling to ensure borrowers understand the reverse mortgage process, costs and implications. Counseling sessions typically last 90 minutes and cost around $125. In addition to an improved cash profile and helping seniors stay in their homes, reverse mortgages can deliver other benefits. For instance, the ability to use the funds however they wish, whether for day-to-day costs, medical expenses, investments, boosting retirement income or for home improvements to make their home more livable as they age. This can help preserve savings for other purposes. If the borrower defaults, the lender can only claim the collateral (the home), protecting other assets. This enhances the ability to move to a new home that may be more affordable, easier to maintain, or better equipped for their physical needs. The funds are not taxed as income, providing more financial flexibility. Common myths The increasing prominence of reverse mortgages has also produced a number of widely circulated myths and misconceptions. Unfortunately, these myths often prevent seniors from considering a reverse mortgage when it could provide exactly the type of financial assistance they need. One of the more common misconceptions is many people believe that if you sign up for a reverse mortgage that the lender now owns your home. Nothing could be further from the truth. The lender does not take ownership of the borrower’s home. A borrower owns their home until they decide to sell or they pass away. In fact, reverse mortgages require borrowers to maintain many of the same homeownership responsibilities they currently have. Reverse mortgages are not real estate ownership transactions. They are simply loans, much like many other home equity loans. A related myth is that if the homeowner dies before selling the home, then the lender inherits the home instead of the heirs. This is also false. Let’s say someone takes out a reverse mortgage and dies before selling their house. Their heirs will then sell it, and they pay back the amount of the loan from the sale proceeds. All of the other sale proceeds go directly to their estate and/or heirs. This myth is particularly ironic because reverse mortgages are often a useful tool for avoiding foreclosures. They provide the cash a homeowner may need to pay for any housing or other expenses that might otherwise contribute to foreclosure. People often don’t realize that their home has generated significant equity, and a reverse mortgage can convert that equity into much-needed cash. Comfortable decision Some homeowners believe that reverse mortgages are only intended for those in economic need. Or people believe that they could only qualify if they have savings or incomes below a certain level or for people who are on the verge of outliving their retirement savings. Some people may have ample funds in their 401(k) or other retirement investments, but for various reasons — for example, preferring to leave that money to their children — they’d rather not touch it. A reverse mortgage can then be a valuable option for generating money for day-to-day expenses, so borrowers can leave that 401(k) money alone. Reverse mortgages generally do not impact either Social Security or Medicare. It’s certainly good to check with a financial adviser to confirm that this is true for each individual case. But it’s very unusual for either of those programs to be impacted by taking out a reverse mortgage. “Even if homeowners fully understand how reverse mortgages operate and have moved beyond the myths, it’s still important to have a conversation with a trusted financial adviser.” Even if homeowners fully understand how
Can you use home equity to pay for long-term care?
Aging is inevitable. It’s also very expensive. At some point in our lives, seven out of 10 of us will need long-term care. And costs for it are high, rising faster than inflation overall. The annual price tag to stay in a nursing home currently tops more than $100,000 a year, according to Genworth and CareScout’s 2024 Cost of Care Survey. If you need a home health aide or caregiver services, like cooking and cleaning, get ready to fork over $75,000 a year for each. Millions of seniors facing that sticker shock have a powerful asset at their fingertips: their home equity. About $14 trillion in housing wealth (about 40% of all the home equity in the U.S.) is held by homeowners 62 years of age and older, close to a record high, according to the National Reverse Mortgage Lenders Association (NRMLA). While many seniors don’t expect to tap into that wealth to pay for health care or other medical needs, they typically end up doing so. It may be their only option, in fact. How can seniors effectively leverage their home equity in their later years? How can their ownership stake fit into a long-term care plan? Tapping home equity can be a smart move, but only if it’s planned, with the right method in mind. Why you might need to tap home equity Do you have a pension, receive Social Security benefits, or have money tucked aside in savings? If you do, the unfortunate reality is that these income sources may not be enough to cover the rising costs of assisted living or a nursing home — or even an aide to help around the house. “The cost of getting in-home care can be significant, even for those who have planned retirement as best as they could,” says Steve Irwin, president of the NRMLA. “Less than one-third of Americans aged 50 plus have begun saving for long-term care. That’s because they either do not think they will need care or they mistakenly believe they are covered by Medicare or their health insurance policies,” says Jamala Arland, president and CEO of US Life Insurance, Genworth, a company that helps seniors navigate aging. Many older Americans assume that Medicare will pay for their aging-in-place and long-term health needs. Unfortunately not. Medicare will cover home health assistance after a hospital stay and up to a 100-day stay in a skilled nursing facility, but it does not pay for longer stays in nursing homes or assisted living facilities. Nor does it cover caregivers. Get the Michigan Politics newsletter in your inbox. Washington and Lansing, red and blue, we’ve got your government covered. Delivery: DailyYour Email Falling short on savings Medicaid does cover long-term care for individuals – provided they meet strict income and asset requirements. According to the NRMLA, while more than half of older Americans say Medicaid will be a source of support, only a small percentage will actually be eligible. In 2025, single seniors who need to receive nursing home Medicaid can’t have an income in excess of around $2,901 a month (the actual amount varies depending on the state). For married couples applying, it’s $5,802. What about the seniors who have or make “too much” money? They will be forced to spend down their income and assets in order to qualify. But if you think you can just gift large sums of money to other people or charities, or offload some or all of your assets (like your home), think again. In most states, Medicaid has a five-year look-back period for long-term care, in which it reviews all your financial transactions. Any large gifts or asset transfers within that time frame will swiftly put you on the denial list. “It’s not that Medicaid is a terrible program,” says Marc Cohen, co-director of the LeadingAge LTSS Center at UMass Boston, which researches the challenges of the older population. “In fact, it’s a pretty darn good program in many states.” But the fact remains that, in order to receive Medicaid, seniors are put in the position of slowly having to bankrupt themselves, leaving their heirs with nothing when they pass away. Even if they are able to jump through all of those Medicaid hoops, Cohen notes that there are certain services — in particular, home and community-based services — that may not be available because of long waiting lists. Home equity to the rescue That’s why home equity, the primary source of seniors’ wealth, is so critical. The most recent data from the Survey of Consumer Finances, as reported by the Urban Institute, shows the median home equity held by homeowners 65 years and older was $250,000 in 2022. And housing prices and property values have risen even higher since then. In February 2025, home price gains soared to the 19th all-time high in a row, carrying the worth of homeowners’ equity stakes with them. • $313,000 The average mortgage-holding homeowner has, on paper, an equity stake worth $313,000. “About 50% of our customers are using equity from their homes to pay for the cost of care. A lot of them don’t have an alternative,” says Arthur Bretschneider, CEO and founder of Seniorly, a marketplace for senior living facilities. “They’re the folks who have owned homes for many years and they’ve accumulated equity. That’s a blessing. They have it [equity] and now they have to use it.” While many seniors don’t anticipate using homeownership stake to pay for care or other medical needs, they often end up doing so, a Center for Retirement Research at Boston College brief concluded. The brief analyzed a 2024 Greenwald Research survey, in which only one-third (30%) of the respondents said they’d consider using home equity for healthcare expenses. It then analyzed a RAND Health and Retirement Study, focusing on Medicare-covered individuals aged 65-plus, with over $100,000 in investable assets. The year these individuals experienced a long-term healthcare “shock” (major cost), the value of their primary residence declined, implying they borrowed against it to finance the expense. Ways to tap home equity for long-term care There are a number of different ways you can tap
5 Common Reverse Mortgage Myths, Debunked
Many Americans are retiring with less cash than they would like. But in some instances, that can be offset by unexpectedly large — yet welcome — boosts in their home values. Financial planners frequently recommend reverse mortgages to help qualified older folks supplement their income in retirement. But misconceptions are commonplace. “It’s not a tool for everything,” says Zachary Barton, certified financial planner and founder of Barton Financial Group. “If you use it appropriately, it’s a great tool.” Industry experts and knowledgeable homeowners often concur. In a 2024 Opinium survey, 62% of older homeowners agreed that reverse mortgages offer more financial freedom in retirement, provided that they knew how they worked. Here are some of the misconceptions about reverse mortgages, including how they arose and how you can separate fact from fiction. Myth #1: Reverse mortgages are shady Over the years, financial regulators have introduced many consumer protections when it comes to reverse mortgages, particularly for Home Equity Conversion Mortgages (HECMs), which are the most common kind. For example, there is now a pathway for spouses to stay in the home if they are not listed on the loan, and lenders must take extra steps upfront to limit borrowers from running into trouble down the road. Today’s reverse mortgages are a far cry from the late-night infomercials of the ‘90s, but that reputation has not been easily shaken. “Everyone seems to have a general uneasiness,” Barton says. “I don’t feel like the product was bad. They were just missold.” When he thinks a reverse mortgage might be a good fit for a client, he often introduces the idea over the course of a few meetings. That gives clients time to process their feelings after seeing the numbers about how it might boost their own retirement plan and ultimately come to a decision that they are comfortable with. Myth #2: Reverse mortgages are a last resort If reverse mortgages cannot be trusted, according to common sentiment, then the only people who use them must be out of options. However, these secured loans can provide much-needed cash flow for people who do not have other assets to draw on in retirement. But generally, it is better to use reverse mortgages as a way to diversify overall retirement portfolios, similar to how you would diversify your investment portfolio. In fact, when set up properly, they can be a boon to retirees who have perfectly adequate savings. It is possible to set up a reverse mortgage to provide steady monthly payments that cover fixed expenses like your property taxes and insurance for as long as you live, offering an extra layer of security you otherwise would not get with invested savings. You can also set up a reverse mortgage as a revolving line of credit that you can draw on as needed — for instance, when a market downturn results in investment losses. Doing so can reduce the likelihood of having to sell stocks in your portfolio when it is down, according to Barton. “And when you do that,” he says, “you can actually reduce how much you need to have in retirement.” But the biggest testament comes from a 2016 study by the Financial Planning Association that looked at how different retirement portfolio options would play out over time. The simulation showed that homeowners taking out a reverse mortgage line of credit at the start of their retirement doubled their odds of success (i.e., not running out of money) over the course of a 30-year retirement. Without a reverse mortgage, the model portfolio stood a 40% chance of having enough cash over a three-decade retirement. However, with a reverse mortgage, those odds bumped up to 80%. Myth #3: Reverse mortgages are expensive This is an issue Barton says he comes across often, adding the caveat that “expensive” is relative. Reverse mortgages do have upfront costs, not unlike mortgaging a property. That can add up to several thousand dollars, but with a reverse mortgage, you can roll those costs into your loan amount. But unlike a traditional mortgage, borrowers are not required to make recurring payments. That is the main reason many borrowers choose a reverse mortgage, after all. Instead, the loan balance ticks upward in the background, with interest and fees being added each month. The balance isn’t settled until after you are out of your home, but you — or your estate — generally will never owe more than your home is actually worth, no matter how large your balance grows. Myth #4: Your heirs won’t inherit your home Another common misconception about reverse mortgages is that your heirs won’t be able to inherit your home after you are gone. But there is nothing in reverse mortgage loan documents that excludes heirs — and in fact, they may even get certain benefits in keeping the home. When the time comes, your heirs get to decide what to do with your home: sell it, turn it over to the lender or pay off the reverse mortgage to keep it, usually by getting a new mortgage of their own. If the reverse mortgage balance grows larger than your home is actually worth — as is possible — then your heirs only have to repay 95% of its value to sell or keep it. In other words, they might get a 5% discount on your home. Importantly, heirs are not required to sell the home to satisfy the loan balance. They have the option of repayment with cash or by taking a new mortgage. “I do think people worry about that too much. Most of the time, people’s adult children don’t want to move into a house that their 85-year-old parents were living in. They’re gonna sell it,” Barton says. “So then, what’s the difference between selling a house that has a reverse mortgage on it, versus a traditional mortgage that’s just not paid off?” Myth #5: You won’t own your home anymore Another common myth is that reverse mortgage borrowers no longer own their home. As is the case with a normal mortgage, you
Can Social Security recipients get a reverse mortgage?
For many older Americans, retirement comes with a mix of financial security and new challenges. While Social Security provides a reliable income stream, it’s rarely enough to maintain the lifestyle many seniors envision for their golden years. This financial gap has led many homeowners over 62 to explore reverse mortgages, which offer a potential solution for tapping into their home equity without selling or moving — or the burden of monthly payments. The intersection of Social Security benefits and reverse mortgages raises important questions for retirees, though. Many wonder if receiving Social Security payments could disqualify them from obtaining a reverse mortgage, or if getting a reverse mortgage might impact their existing benefits. These concerns are understandable given the complex rules surrounding government benefits and financial products aimed at seniors. Fortunately, the relationship between Social Security and reverse mortgages is more straightforward than it may appear. So, is it possible for Social Security recipients to get a reverse mortgage, or do retirees who want to access their home’s equity need to look elsewhere instead? Can Social Security recipients get a reverse mortgage? Yes, Social Security recipients can generally get a reverse mortgage. In fact, receiving Social Security benefits does not disqualify you in any way from being approved for a Home Equity Conversion Mortgage (HECM), which is the most common type of reverse mortgage and is insured by the Federal Housing Administration (FHA). The primary requirements for a reverse mortgage include: Your income sources — whether Social Security, pensions, investments or other retirement funds — are considered during the financial assessment portion of the application process. However, receiving Social Security benefits specifically is not a barrier to qualification. What matters more is whether your overall financial situation demonstrates the ability to meet the ongoing obligations of homeownership, including taxes and insurance. In this context, Social Security income is actually viewed positively as a stable, reliable income source. Does a reverse mortgage impact your Social Security benefits? One common concern is whether reverse mortgage proceeds might affect Social Security benefits. For standard Social Security retirement benefits, the answer is generally no — these benefits are not means-tested, so additional income or assets from a reverse mortgage will not reduce your payments. However, if you receive Supplemental Security Income (SSI) or Medicaid, you’ll need to exercise caution. These programs are means-tested, and reverse mortgage proceeds that remain in your account past the month you receive them could potentially count as assets, possibly affecting eligibility. To avoid complications, it makes sense to work with a financial advisor who specializes in retirement planning, who can help you structure how you receive and use your reverse mortgage funds. How to get a reverse mortgage while on Social Security If you are receiving Social Security and want to apply for a reverse mortgage, the process is similar to applying for one without Social Security income. Here’s how it works: The bottom line If you rely on Social Security benefits and need additional financial support, a reverse mortgage can be a viable option. Since Social Security retirement benefits are not means-tested, they will not be reduced by a reverse mortgage. However, if you receive Supplemental Security Income, you must carefully manage your reverse mortgage funds to avoid affecting your eligibility. Before making a decision, it’s typically a good idea to consult a financial advisor or HUD-approved counselor to fully understand how a reverse mortgage fits into your financial picture. While a reverse mortgage can provide much-needed financial relief, you need to weigh the pros and cons to ensure it aligns with your long-term goals. Angelica Leicht
Laid Off at 61: Now What?
A Moneywise reader recently posed a difficult question: “I’m 61, laid off, with $103,000 in savings and a $1,800/month mortgage. How do I bridge the gap to Social Security?” Unfortunately, life has a way of upending even the most carefully crafted retirement plans. With economic uncertainty looming and predictions of a recession on the horizon, more Americans may soon find themselves in similar predicaments. The Bureau of Labor Statistics highlights a troubling reality: older workers who lose their jobs during a recession are more likely to experience negative health effects, including long-term consequences that extend beyond financial hardship. In short, being laid off late in life can take a toll—financially, emotionally, and physically. Assessing the situation Let’s break down what we know about this individual’s financial landscape: However, several crucial details remain unknown: The Challenge of Tapping Retirement Savings Moneywise advises against prematurely depleting retirement funds, warning, “If you draw down your retirement savings too early, you won’t have enough invested to earn returns.” The lost opportunity for growth could leave them with insufficient funds later in retirement, making other strategies more appealing. Exploring Solutions The most direct solution would be securing new employment. However, older workers often face challenges in re-entering the workforce, with job searches sometimes stretching beyond a year. Meanwhile, unemployment benefits offer only limited, short-term relief, with most states only paying benefits for 26 weeks. If re-employment isn’t an immediate option, what alternatives exist? Moneywise suggests considering a reverse mortgage or downsizing—options that depend heavily on home equity. Would a HECM help? For example, suppose this homeowner has a $400,000 home with only $60,000 left on the mortgage. If they qualify for a Home Equity Conversion Mortgage (HECM) at age 62, their reverse mortgage could eliminate their $1,300 monthly principal and interest payments, providing much-needed relief. Additionally, they could access a $38,000 HECM line of credit. However, this strategy alone doesn’t fully replace their lost income. The Social Security Dilemma Another tempting but potentially costly option is claiming Social Security benefits at 62. While this provides an immediate income stream, the long-term financial impact of reduced lifetime benefits can be substantial. A healthy retiree may live to regret claiming benefits too early. The Need for Professional Guidance A trusted financial advisor can provide critical guidance in situations like these. The goal isn’t just to survive the short term but to establish a sustainable, long-term financial plan. Reverse mortgage professionals should encourage clients to seek outside counsel rather than acting as de facto retirement planners. The Bottom Line A reverse mortgage can help—but it’s not a cure-all. It may provide temporary relief, but without a broader strategy to replace lost income, financial insecurity remains a primary concern. The key to navigating late-career layoffs lies in exploring multiple options, making informed decisions, and planning for long-term stability. by Shannon Hicks
Unlocking Tax Benefits with Reverse Mortgages
Robert Powell: How might you use a reverse mortgage to manage taxes in retirement? Here to talk with me about that is Don Graves. He’s the president of the Housing Wealth Institute, the author of three books on reverse mortgages, and an adjunct instructor of retirement income at the American College of Financial Services. Don, welcome. Don Graves: Thank you, Bob Powell. Good to be back with you. Powell: It’s good to have you here. I understand that you’ve written an article for Retirement Daily where you describe the seven ways that you can reduce taxes by using a reverse mortgage. Walk us through it. Graves: That’s crazy, isn’t it? Just think about that. You mention reverse mortgage at the barbecue and you know what happens, Bob? Three people dive under the table. It’s dangerous. To think about using a reverse mortgage to manage taxes in retirement—that’s got to be unheard of or at least unorthodox. But that’s one of the things, Bob, that your platform allows people like myself and the reverse mortgage to overflow into larger applications. I appreciate that. I met you through one of your organizations that specifically works with advisors on how to manage taxes and IRAs. Apparently, and you can chime in on this, most of the retirement wealth in America is being held in tax-deferred accounts. Is that correct? Powell: Yes, and many people refer to it as a ticking tax bomb. So it’s a problem. Tax Challenges in Retirement Graves: Folks within your organization are consistently saying and proving that taxes have nowhere to go but up. We hope that’s not going to be true, but it looks like it could be, unless we slash all this money we’re spending these days. But prevailing wisdom is we’ve dug ourselves a pretty big hole. In retirement, there are typically four key tax issues you’re looking at: required minimum distributions, capital gains tax, Social Security taxes, and the income-related monthly adjustment amount (IRMAA) surcharges that not a lot of people know about. You need strategies to deal with the taxes that are coming on your tax-deferred accounts. Powell: So how does someone put a reverse mortgage in use? Why is it so unique? Understanding Reverse Mortgages Graves: A reverse mortgage, by way of quick definition, is a federally insured loan for those age 62 or better. There are some proprietary products as well, but the most common is the home equity conversion mortgage. It allows retirees to borrow money without giving up ownership or coming off title, and they don’t have to make a monthly mortgage repayment. The most common use of the home equity conversion mortgage is the line of credit. A 65-year-old in an $800,000 home is able to get around $236,000 in a growing line of credit. The reverse mortgage line of credit is a growing line of credit. As you leave it in there, it’s just growing. And that’s going to become the foundation for all of these seven strategies we’ll talk about—the growing line of credit. Powell: So there are seven steps that you go through in the article. Is it worth going through them now? Seven Tax-Saving Strategies Graves: I think so. I can do them quickly, then people can read the article. 1. Supplementing Income Beyond RMDs Required minimum distributions are going to kick in at 73 or at some point, I think 75. All that money in your tax-deferred accounts, Uncle Sam says you need to start taking it and you need to start paying us. But we don’t know what Sam is going to require. What happens if you say, “Don, I know I have to take my required minimum distributions, but I need a little bit more than the RMDs.” I would say, if you can limit your RMDs to just that and anything extra, take it from some other non-taxable account, if you have one. That’s where the reverse mortgage line of credit comes in. Take your RMDs, but anything above that or beyond RMDs, take it from your reverse mortgage. That’s going to mitigate the taxes because that’s less taxes you’re going to have to pay. 2. Delaying Social Security Benefits We’ve heard that for many people, if you can defer your Social Security from age 62 to 67 or 70, it’s going to grow at around 8%. Not everybody can do that, but some people can, and it’s going to be beneficial to many. But here’s what happens: “Don, I’d like to defer Social Security. We’re in the process of deferring it so we can make that check as big as possible, but we need some money now. I don’t want to turn on the Social Security because we have a strategy, but I need money.” So they say, “I’m going to go into my taxable or tax-deferred accounts and I’m going to start drawing out some money there.” I say, “You can do that. But before you do it, you’ve got another bucket—your reverse mortgage line of credit.” So instead of taking dollars out and paying taxes on that withdrawal, use your other bucket. Now you can fund whatever income needs you have during deferral without incurring taxes on drawing this money out. 3. Avoiding IRMAA Surcharges IRMAA is the income-related monthly adjustment amount. When you get Social Security, you’re going to be paying Medicare Part B and Part D. They’re going to withhold some money. But if you have too much money coming into your Social Security, your provisional income, that amount is going to be more. In the article, there’s a retired single lady and her threshold at the time was $103,000. She was going to take some more money out that was going to push her over that threshold. That was going to cost her—two years after you do that, your Social Security gets reduced, Part B and D. We said, instead of taking the extra $20,000 or $30,000 that pushes you over and causes your Social Security to be
“Should I Live Under a Bridge?” I receive more than $5,000 a month from Social Security and retirement, but soon my property taxes will be $20,000 – I need help
A 76-year-old widower and former schoolteacher recently inquired about her Social Security income, which made headlines. She claims that her monthly Social Security benefits amount to approximately $5,600. Her property taxes have rapidly increased during her 49 years of residence in Edmonds, Washington. In 2025, property taxes are predicted to reach $20,000 or higher; she believes that home sales, not renovations, are what raise property taxes. With an IRS deduction cap of $10,000, she lacks the funds to pay these taxes. Despite earning more than $5,000 in Social Security benefits, she won’t be able to afford her taxes Inflation, particularly healthcare and housing inflation, has the potential to dramatically impair Social Security benefits as we live longer in retirement. The expense of maintaining and paying taxes on a home is typically proportional to its value, making compounding both advantageous and negative. Certified financial adviser Mark Struthers advises against this scenario. However, there are some steps you might wish to take, such as seeking low-cost or free financial counsel. Here are some possibilities to examine, as well as where you may get affordable professional help. Kenneth Robinson, a CFP with Practical Financial Planning, believes that homeowners may be eligible for a modern reverse mortgage due to Home Equity Conversion Mortgage (HECM) regulations, which have alleviated many of the concerns connected with reverse mortgages. Despite their initial disdain, many homeowners now consider reverse mortgages to be the most effective method to stay in their houses. In essence, a reverse mortgage is a loan in which standard monthly payments are exchanged for the surrender of home equity. The mortgage and interest are therefore paid back when a homeowner sells their house or dies, but they are no longer required to make mortgage payments while they are still residing in the house. Most significantly, as long as you reside in the house, you are exempt from loan repayment. According to Robinson, the lender can only utilize the house as collateral to repay the debt. The line of credit will increase at a rate decided upon at the beginning of the reverse mortgage if the loan turns out to be greater than the value of the house. The gap cannot be made up from other assets. On the other hand, Gordon Achtermann, a CFP at Your Best Path Financial Planning, recommends that if your Social Security benefits are fixed and your expenses continue to rise, you may not be able to afford to live in the most expensive section of the country, indicating that something must change. It is important to consider that if property values are rising rapidly, you must have a sizable amount of home equity, even though you don’t mention having a mortgage. See if you can buy a house for cash with the money you make from selling your existing one and think about relocating to a region with a lower cost of living, advises Achtermann. You will have a nest egg to invest in once you move if you don’t have a mortgage. Moreover, a fee-only financial adviser can recommend investments based on risk tolerance and life expectancy. A free, no-obligation consultation can be arranged to discuss difficulties and potential solutions. Financial consultants can also assist with budgeting and mitigating the effects of rising property taxes. For example, the state of Washington offers several relief options for low-income homeowners and seniors who rely only on Social Security benefits, such as property tax exemptions and deferrals. These programs can have a big impact on your bottom line, so it’s worth checking to see if you qualify. There are also pro bono solutions that provide valuable guidance at no cost to the client. Keep in mind that hourly planners, who typically charge between $150 and $450 per hour, are ideal for clients who don’t need a lot of assets. They can help explore options with the government or other options that may allow the client to stay in their home, as hiring a professional is about making better decisions and ensuring nothing is overlooked regarding your Social Security income and future financial well-being. by Sandra F. March 4, 2025