Reverse mortgages: what homeowners should know before deciding
August 7, 2026
Reverse mortgages often get a bad rap, but for the right homeowner they can be a useful tool. They allow qualifying homeowners age 62 and older to convert part of their home equity into cash, a line of credit, or monthly payments without giving up ownership. The product has changed a lot over the years, and today's version looks very different from the ones that made headlines decades ago. Understanding how a reverse mortgage actually works is the first step toward deciding whether one belongs in your retirement plan.
A reverse mortgage is a loan that uses the home itself as collateral, but unlike a traditional mortgage the borrower does not make monthly payments to the lender. Instead, the loan balance grows over time and is repaid when the homeowner sells, moves out permanently, or passes away. To qualify, the borrower must be at least 62, own the home outright or have a small remaining mortgage balance, and live in the home as their primary residence. The home also has to meet certain property standards and the borrower must complete a counseling session with a HUD-approved agency before closing. These requirements exist to protect consumers from taking on a loan they do not fully understand.
There are a few different ways the funds can be received. Some homeowners prefer a lump sum, others choose a monthly payment stream that supplements Social Security or pension income, and many opt for a line of credit that grows over time and can be drawn on as needed. The line of credit option is often the most flexible because unused funds still accrue growth at the loan's interest rate. Funds from a reverse mortgage are generally not considered taxable income, though they can affect eligibility for certain means-tested programs, so it is worth checking with a financial advisor. Costs include an origination fee, closing costs similar to a traditional refinance, and a mortgage insurance premium that protects both the borrower and the lender.
The biggest concern most people have is whether they will lose their home. The short answer is no, as long as the borrower continues to live in the home, keeps up with property taxes and insurance, and maintains the property. Heirs are not personally liable for any shortfall between the loan balance and the home's value, because the mortgage insurance covers that gap. That said, a reverse mortgage is not right for everyone. Homeowners who plan to move in the near future, those who want to leave the home to heirs free and clear, or those with other more affordable options may be better served by a different approach.
A reverse mortgage can be a smart way to access equity without selling the home, but only when the borrower understands the trade-offs. Talking through the numbers, the costs, and the long-term impact with a knowledgeable professional is essential before moving forward.