Reverse mortgages explained: what homeowners should know
July 28, 2026
Reverse mortgages have carried a stigma for years, often dismissed as a last-resort option for struggling retirees. In reality, the product has evolved into a flexible planning tool that helps a specific group of homeowners make the most of their biggest asset. With more proprietary options available today and a higher-rate environment reshaping the math, it's worth taking a fresh look at how reverse mortgages actually work.
A reverse mortgage allows homeowners 62 and older to convert part of their home equity into cash, either as a lump sum, a line of credit, or monthly payments. The borrower doesn't make monthly mortgage payments; instead, the loan balance grows over time and is repaid when the home is sold, the borrower moves out, or passes away. The most common version is the HECM, insured by the federal government, though proprietary reverse mortgages have grown significantly in recent years to serve homeowners with higher-value properties. Because the lender is paying the homeowner rather than the other way around, the structure flips the traditional mortgage model on its head.
The typical borrower is a homeowner who wants to age in place, has substantial equity, but could use additional cash flow to cover living expenses, healthcare, or home improvements. A reverse mortgage can also be used strategically to delay drawing down retirement accounts during market downturns, preserving investments for later. Some couples use a reverse mortgage to buy a new home that better fits their retirement lifestyle, freeing up liquidity without adding a traditional mortgage payment. The line of credit option, in particular, has become popular because unused funds grow over time and remain available when needed.
Higher mortgage rates have affected the reverse mortgage market in a different way than the forward market. With traditional refinance activity slowed, more attention has shifted toward equity-tapping products, and proprietary reverse mortgages have expanded to fill gaps that government-insured options don't cover for higher-balance homes. Counseling is required for HECMs, and that's not a hurdle to clear lightly; it exists to make sure borrowers understand the long-term costs, including fees, interest, and how the loan balance affects the estate. Heirs should also understand that a reverse mortgage doesn't transfer the debt to them; the home is simply sold or refinanced to settle the loan.
A reverse mortgage isn't right for everyone, but for the right homeowner, it can be a powerful tool for retirement planning. The key is understanding the tradeoffs, running the numbers with a clear-eyed view of the long-term impact, and choosing the right payout structure for your situation.