If you’re an older American struggling with the cost of living, you’re not alone — 60% of adults 50 and older are worried they won’t have enough money to last through retirement, according to a 2026 AARP survey. If this sounds familiar, a reverse mortgage could be worth exploring to help cover your basic expenses.
Reverse mortgages aren’t a total cure-all for retirement money problems, though. They still carry the risk of default and foreclosure if you don’t meet the ongoing requirements.
Here are the main pros and cons of reverse mortgages to help you decide if getting one is the right move for your situation.
How does a reverse mortgage work?
A reverse mortgage is basically the opposite of a traditional home loan. With this kind of loan, you won’t make monthly payments. Instead, fees, interest and home equity are traded for access to cash or a line of credit. Each month, your loan balance grows — and as it does, the amount of equity you have steadily falls.
This isn’t free money, though. Eventually, the loan has to be paid back, typically when the last surviving borrower dies or no longer lives in the home. In many cases, the homeowners or their heirs will sell the house to repay the loan.
Reverse mortgage pros and cons
Pros
Provides extra retirement income
Allows you to pay off an existing mortgage
Offers tax-free proceeds
Protects you from owing more than the home is worth
Cons
Risks home loss in the event of a default
Carries high upfront costs and fees
Reduces your home equity over time
Heirs may not be able to keep the home
Pros of reverse mortgages
Provides extra retirement income
Reverse mortgages are designed for borrowers who are house-rich but cash-poor. If you can afford the other costs of owning a home (like home insurance and property taxes), a reverse mortgage could be a way to tap into your equity to cover your living expenses.
You can typically get your funds through one of the following:
Monthly payouts
A line of credit
A lump sum
Some financial planners have also used reverse mortgages to help well-off clients spread out their investments. This has become a less appealing choice recently due to rising interest rates, though.
Allows you to pay off an existing mortgage
Even if you're still making payments on a regular mortgage, you might have enough home equity to qualify for a reverse mortgage. In that case, you could use the proceeds to pay off your current mortgage balance and free up money for other expenses.
This move can be appealing to older homeowners whose budgets are strained by monthly bills. And it's a fairly common use of reverse mortgages, too.
Proceeds are tax-free
The IRS considers proceeds from a reverse mortgage to be a loan, not income, so you won't face taxes on it. For older homeowners living on a fixed income, that could come as a relief.
There are still plenty of costs to consider, though. On top of drawing on your equity, you’ll also pay origination fees, mortgage insurance premiums (for HECMs) and interest charges.
The interest that accrues on a reverse mortgage is tax-deductible only if the proceeds are used to “buy, build, or substantially improve” the property, according to IRS rules. It also isn’t deductible until the loan is paid off partially or in full.
Protects you from owing more than the home is worth
With most reverse mortgages, you — or your heirs — won’t have to worry about owing more than the home is worth once the balance is due. If the reverse mortgage balance ends up being higher than the home’s value, you’ll owe just 95% of the home’s appraised value, and mortgage insurance will kick in to pay off the rest of the balance.
Cons of reverse mortgages
Risk of default and foreclosure
With a reverse mortgage, you default when you fail to meet the loan’s ongoing requirements. That can lead to eviction and foreclosure, if unresolved. And it's possible to do this accidentally if you're not careful.
There are three main ways you might default:
Living outside the home for most of the year or failing to certify that your home is your principal residence each year.
Not paying property taxes, homeowners insurance or other property-related charges.
Not making maintenance repairs to your home required by your lender.
High upfront costs and fees
Reverse mortgages are most helpful for long-term financing or income needs. That’s mainly because they require you to pay certain closing costs and fees. This includes not only origination fees but also an initial mortgage insurance premium.
For HECMs, the initial mortgage insurance premium due at closing is generally 2% of the house’s appraised value. While you can use your loan to cover the cost, that would reduce the amount of money you receive.
You might be able to keep more of your home equity by borrowing money in a different way. Other short-term financing options include:
Reduces your home equity over time
Your reverse mortgage balance will continue growing each month. This will steadily drain your equity at the same time, which means you (or your heirs) likely won’t get any profit from eventually selling the home. This could greatly limit your options down the line.
For example, say you need to move to an assisted living facility or want to move to be closer to your family. If you have a reverse mortgage, you might not get any extra funds from selling the home to cover your costs.
Heirs may not be able to keep the home
With HECMs, here's what happens to your home when you die: Your heirs must pay either the full loan balance or 95% of the home’s appraised value, whichever is less. They can do this by:
Paying out of pocket
Getting financing
Selling the home
Turning the home over to the lenders to satisfy the debt
If your heirs can’t come up with the money to pay off the loan, the home wouldn't remain in the family.
Your spouse might be able to stay in the house even if you move out or die. Here’s how it works:
If they’re a co-borrower on the reverse mortgage, they can continue living in the home and will remain responsible for the loan without owing the balance.
If they aren’t a co-borrower on the reverse mortgage but were married to you when you originally got the loan, they might still be able to stay without owing the balance. To do so, they’ll need to annually certify that they’re your non-borrowing spouse and continue living in the home as their primary residence.
Is a reverse mortgage worth it?
Assuming you qualify, a reverse mortgage could make sense if:
You have a long-term need for additional income or credit, not a one-time expense you could easily pay off. And you’ve also already taken advantage of benefits that are available to you, such as Medicare and Social Security.
You’re willing to give up equity in your home for income, even if it means your heirs might not be able to keep the home in the long run.
You plan to stay in your home for the rest of your life and can meet the requirements of a reverse mortgage, such as keeping up with property taxes and homeowners insurance.
If that’s not you, consider other options, such as moving to a less-expensive home or borrowing money in other ways.
» MORE FOR CANADIAN READERS: What is a reverse mortgage?
