Is a Reverse Mortgage Right for You?

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For homeowners nearing or already in retirement, a reverse mortgage is a way to turn home equity into tax-free cash without having to sell or move out. Here’s what you need to know before you consider one.

Key Takeaways

A reverse mortgage lets homeowners 62+ turn home equity into tax-free cash without monthly payments.
A reverse mortgage loan is repaid when you sell, move out, or pass away, which can reduce what’s left for your heirs.
Reverse mortgages can be helpful for those in retirement, but it’s important to weigh the costs and explore alternatives first.

What is a Reverse Mortgage?

A reverse mortgage is a loan for homeowners (typically age 62 or older) that lets you convert part of your home’s equity into cash. Instead of making monthly mortgage payments, you receive payments from the lender. These can be taken as monthly installments, a lump sum, a line of credit, or a combination of all three.

The most common type is a Home Equity Conversion Mortgage (HECM), which is backed by the Federal Housing Administration (FHA). There are also proprietary reverse mortgages from private lenders and single-purpose reverse mortgages offered by some local governments and nonprofits.

Why Would You Get a Reverse Mortgage?

People use reverse mortgages for a variety of reasons, including:

Supplementing retirement income
Covering medical expenses
Paying off high-interest debt
Funding home improvements or accessibility upgrades
Delaying Social Security benefits to increase their eventual payout

Some people even use a reverse mortgage to buy a new primary home (a strategy called a reverse purchase).

How Does a Reverse Mortgage Work?

When you get a reverse mortgage, you’re essentially borrowing against the equity you’ve built in your home over time. The process starts with a lender evaluating your home’s value and determining how much equity you can access, based on your age, interest rates, and current home value. Once approved, the loan amount is set, and you can choose how you’d like to receive the money—monthly payments, a lump sum, or a line of credit.

Unlike a traditional mortgage, you’re not making monthly payments to the lender. Instead, interest is added to your loan balance each month, and the total amount owed grows over time. The loan doesn’t need to be repaid until you sell the home, move out for more than 12 months, or pass away. At that point, the home is typically sold, and the proceeds are used to repay the loan. Anything left over goes to you or your heirs.

How to Qualify for a Reverse Mortgage

To qualify for a reverse mortgage, you typically need to:

Be at least 62 (some proprietary options allow borrowers as young as 55)
Live in your home as your primary residence
Either own your home outright or have paid off a significant portion
Stay current on property taxes, insurance, and HOA dues
Participate in a HUD-approved counseling session

Once you qualify, how much you can borrow depends on your age, your home’s value, current interest rates, and the type of loan you choose.

Find Out If You Qualify For a Reverse Mortgage

Discuss your options with a local mortgage expert from Churchill Mortgage.

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Repaying a Reverse Mortgage Loan

You don’t have to repay the reverse mortgage while you live in your home. However, the loan becomes due when you move out of the home, sell it, or pass away.

Your heirs can either repay the loan and keep the home, sell the home and use the proceeds to repay the loan, or simply turn the home over to the lender (especially if the loan balance exceeds the home’s value).

How Much Does a Reverse Mortgage Cost?

Just like a traditional mortgage, reverse mortgages are different for every borrower. But most come with fees, including:

Mortgage insurance premiums (required for HECMs)
Loan origination fees (capped at $6,000)
Servicing fees
Third-party charges (like appraisals, title insurance, and inspections)

These fees, along with accruing interest, are typically added to your loan balance over time.

Pros and Cons of a Reverse Mortgage

A reverse mortgage can offer flexibility in retirement, but it’s not the right fit for everyone. Here’s a quick look at the pros and cons to consider.

Pros of a Reverse Mortgage:

Provides tax-free cash flow
No monthly mortgage payments
Can help you stay in your home as you age

Cons of a Reverse Mortgage:

Can be expensive
Reduces the equity you leave to heirs
May affect eligibility for Medicaid or SSI
Can be difficult to get out of if your plans change

Alternatives to Consider

If a reverse mortgage doesn’t feel like the right fit, there are other ways to tap into your home’s equity.

Home Equity Loan or HELOC: Lower fees and interest but require monthly payments.

Cash-Out Refinance: Replace your current mortgage with a new one and take out equity in cash.

Shared Equity Agreement: Get a lump sum in exchange for a share of future home appreciation.