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Here’s When a Reverse Mortgage Could Make Sense for You
By Gabriel O Rodriguez MONEY RESEARCH COLLECTIVE
Reverse mortgages can act as a lifeline for homeowners in or near retirement, providing access to a steady stream of cash by tapping into home equity. But as with any financial tool, they’re not suitable for everyone. Understanding how they work can help avoid potential risks, such as reduced home equity or interest accrual.
Read on to learn how a reverse mortgage works, the types of reverse mortgages available, and when it could make sense to get a reverse mortgage — and when it may not.
How does a reverse mortgage work?
A reverse mortgage allows homeowners aged 62 and older to borrow against their home’s equity, with no requirement to repay the loan until they sell the home, move out or pass away.
Instead of making monthly payments, homeowners receive payments from the lender, turning their home equity into accessible funds.
Unlike traditional mortgages, where you pay down the loan over time with monthly payments, a reverse mortgage accrues interest, actually increasing the loan balance as time passes as monthly payments aren’t required. Moreover, you’ll still be responsible for property taxes, homeowners insurance and home maintenance, just like with a traditional mortgage.
Types of reverse mortgages
Understanding the different types of reverse mortgages is critical before deciding which could potentially be right for you.
Home Equity Conversion Mortgage (HECM)
HECMs are by far the most common type of reverse mortgage. Insured by the Federal Housing Administration (FHA), these loans offer the most flexible disbursement options — such as monthly payments, a line of credit or a lump sum — but come with stricter eligibility requirements, including mandatory counseling.
Because HECMs are federally insured, they have borrowing limits. For instance, the amount you can borrow is limited by several factors, including the age of the youngest co-borrower or non-eligible spouse, the loan’s interest rate and your home’s appraised value. The maximum home value that can be used for a HECM is set at $1, 209,750 (as of 2025). Any value above that amount doesn’t count toward your loan.
Single-purpose reverse mortgage
As the name suggests, single-purpose reverse mortgages are restricted to specific uses, such as home repairs, property taxes or other essential expenses. Because of their limited scope, single-purpose reverse mortgages often come with lower fees and interest rates, making them an affordable option if you qualify.
The downside of this type of reverse mortgage is that it lacks the flexibility of HECMs. They aren’t FHA-insured and are offered by non-profit organizations and local governments, although not all states or counties offer them. Eligibility criteria also vary by location, so it’s important to check with local agencies to see if single-purpose reverse mortgages are available in your area.
Proprietary or “jumbo” reverse mortgage
Proprietary or jumbo reverse mortgages are not backed by the government, meaning they can exceed the lending limits imposed by the FHA. As a result, homeowners with properties valued above the HECM limit can access more substantial loan amounts.
While proprietary reverse mortgages offer larger payouts, they do not come with the same insurance that the FHA mandates. Some of these loans may have other consumer protections, but they’ll vary from lender to lender. Because they are privately backed, it’s essential to carefully evaluate the terms and conditions, including interest rates and fees, before moving forward.
When could a reverse mortgage make sense?
Reverse mortgages can be a helpful financial tool, but timing and circumstances matter. Whether or not getting one makes sense is based on your financial goals, home value and retirement plans.
A reverse mortgage may be right for you if any of the following statements ring true.
Your home is increasing in value
Homes in high-demand or growing real estate markets are particularly well-suited for this option, as their value will likely increase over time. If your home’s value appreciates, this could also increase the likelihood of leaving your heirs with a property they can sell for profit — even after paying back the reverse mortgage.
You’re short on retirement funds
If you’re concerned about running out of savings during retirement, a reverse mortgage can help supplement your income. It provides a payout or cash flow that doesn’t require you to sell your home or tap into other investments prematurely. This can be particularly useful if you don’t have a steady income stream from pensions, 401(k)s or IRAs.
You plan to remain in your home throughout retirement
Reverse mortgages make the most sense for homeowners who plan to age in place. Since the loan is repaid when you move or sell the property, staying put allows you to maximize the loan benefits and continue benefiting from the loan’s payments or line of credit.
You can meet the financial requirements of homeownership
While reverse mortgages eliminate the burden of monthly mortgage payments, you’re still responsible for other costs associated with homeownership, such as property taxes, insurance, and maintenance. If you can handle these ongoing expenses, a reverse mortgage can provide a steady source of cash while allowing you to remain in your home.
You don’t anticipate any inheritance issues
You can still leave your home to heirs if you take out a reverse mortgage. However, they will either have to come up with the funds to repay the loan or sell the home. It’s important you and your family understand how repaying the loan works. Other options — like a home equity loan or refinancing — may be more suitable if passing down your home without any conditions is a priority.
You have unexpected expenses
Life is full of surprises, and not all of them are pleasant. Whether it’s a sudden medical emergency or major home repairs, unexpected costs can derail your financial plans. A reverse mortgage can provide the funds necessary to cover these expenses without requiring you to sell assets or dip into retirement accounts.
When could a reverse mortgage not make sense?
A reverse mortgage may not always be the best option for everyone. In the worst case scenario, if you fail to keep up with the terms of the loan, you could have to sell your home or face foreclosure.
Here are some scenarios where you may want to avoid getting a reverse mortgage.
Your home value is decreasing due to changes in the real estate market
If your home is losing value or you don’t have substantial equity to begin with, a reverse mortgage may not provide enough financial benefit to justify the costs. Changes in the real estate market could lead to less equity than you anticipated when it comes time to repay the loan.
Someone lives with you
If you live with someone who isn’t a co-borrower on the reverse mortgage, such as an adult child or relative, they do not have similar protections to a non-borrowing spouse. When you die or move out, the home will need to be sold or the loan repaid, which can complicate living arrangements for those who share your home.
Your home has sentimental value
If your home holds significant sentimental value and you intend to leave it to your children or other heirs, a reverse mortgage may not be the best choice. Once the loan comes due, the home will likely need to be sold to repay the lender or if you leave it as part of your estate, your heir could come up with their own financing to take over the home. (On the flipside, sometimes reverse mortgages are a solution for people who love their home and want to be able to afford aging in place there.)
You think you may move to an assisted living facility
Proceeds from a reverse mortgage can help you cover some medical expenses, including in-home care. But if you have significant health issues that may require you to move into a nursing home or assisted living facility in the near future, a reverse mortgage may not be a good fit. They’re typically best suited for people who plan to stay in their home for a long period of time. Because if you no longer live in your home, the loan becomes due, meaning you or your heirs would need to sell the home or repay the loan from other sources.
You are being pressured by someone to get one
Be cautious if someone — whether it’s a family member, friend or even a lender — pressures you into taking out a reverse mortgage. These loans should be your decision based on your own financial needs and long-term goals, not someone else’s agenda.
Summary
A reverse mortgage can be a useful tool for unlocking home equity, providing financial flexibility and offering peace of mind during retirement. However, it’s important to weigh the pros and cons carefully.
For homeowners with sufficient equity who plan to age in place and can meet the ongoing financial obligations of homeownership, a reverse mortgage may be the right choice. But if your equity is limited or you’re unsure about staying in your home for the long-term, you might want to consider other financial options.