Are Reverse Mortgages Good Or Bad? | Pros, Costs, Red Flags

They can help some older homeowners turn equity into cash, yet fees and long-term tradeoffs can make them a poor fit for others.

A reverse mortgage can feel like a relief: money comes in, and you’re not writing a mortgage check each month. The catch is that the loan balance usually rises over time, and the home often stops being an inheritance you can count on.

The goal here is simple. You should finish this page knowing what a reverse mortgage does well, where it bites, and how to tell if the trade makes sense in your house.

How a reverse mortgage works

A reverse mortgage is a home loan that lets an eligible homeowner borrow against home equity while they keep living in the home. You still hold title, and you still handle the normal homeowner duties: property taxes, homeowners insurance, and basic upkeep.

Instead of paying the lender each month, interest and fees can add to the balance. The loan usually becomes due when the last borrower sells, moves out for an extended period, or dies.

Ways you can receive money

• Lump sum: money at closing.
• Line of credit: draw as needed.
• Monthly payments: steady payouts for a set time or for as long as you stay in the home.
• Combination: mix of the above.

The most common type you’ll hear about

In the U.S., the best-known product is the FHA-insured Home Equity Conversion Mortgage (HECM). HUD’s program page explains the basics and the duties borrowers must keep up with. HUD’s HECM program overview is a good starting point for official definitions.

What “good” can mean in real life

A reverse mortgage tends to work when it solves a cash-flow problem without forcing a move. It usually fits best when you plan to stay in the home for years and you can reliably pay taxes, insurance, and repairs.

Situations where it can fit

• Mortgage payment feels heavy: paying off the remaining balance can free monthly cash.
• Income is steady but tight: monthly payments or a credit line can pay for gaps.
• Big home repair is due: roof work, accessibility updates, or safety fixes can be funded from equity.
• You need breathing room: some homeowners use the loan to avoid selling during a rough patch.

Non-recourse protection, in plain language

Many reverse mortgages, including HECMs, are generally structured so the borrower (or heirs) won’t owe more than the home’s value when the loan is repaid. That limits one scary downside. It does not erase the slow drain of equity from interest and fees.

Where reverse mortgages go bad

Reverse mortgages go wrong when the borrower can’t keep up with the rules, when the costs are larger than expected, or when family plans are fuzzy.

Upfront costs can swallow the benefit

Closing costs can include origination charges, appraisal, title and settlement fees, and for HECMs, mortgage insurance charges. Many borrowers roll those costs into the loan, which means interest accrues on them too.

If you sell or move within a few years, those upfront fees can hurt. Staying longer gives the costs more time to spread out across the years you benefited.

The balance can rise faster than you expect

With no required monthly payments, interest accrues on the running balance. Adjustable-rate structures can add uncertainty. Ask for a written breakdown of the index, margin, and rate caps.

Taxes and insurance can trigger default

This is a common tripwire. If you fall behind on property taxes or homeowners insurance, the loan can go into default even if you never missed a payment in your life. The Consumer Financial Protection Bureau stresses these ongoing duties and the trouble that follows when they aren’t met. CFPB reverse mortgage guidance walks through borrower responsibilities and common problems.

Heirs may need to sell

When the loan becomes due, your heirs can usually keep the home by paying the balance, selling, or refinancing into a forward mortgage. If they can’t qualify for a refinance and don’t have cash, a sale is often the path.

Also watch household details. If a spouse or partner is not a borrower on the loan, their ability to stay in the home can hinge on specific program rules. That topic deserves slow, careful reading before anyone signs.

Bad marketing and fraud still show up

Some ads sell reverse mortgages as “free money” or push borrowers into deals tied to contractors or investments. The Federal Trade Commission lists common risks and how to spot misleading claims. FTC reverse mortgage consumer advice is worth reading before you talk to any salesperson.

Are reverse mortgages good or bad for your retirement plan

To judge the deal, treat it like a trade: cash flow now, less equity later. The only way to tell if the trade is fair is to run it through your own budget and timeline.

Start with three numbers: your monthly shortfall (if any), your cash reserves, and your yearly cost to keep the home (taxes, insurance, basic upkeep). Then add a stress test: what changes if taxes rise, if a major repair hits, or if one borrower needs long-term care and can’t stay in the home?

Next, pick the job for the money. Paying off an existing mortgage is clear. Funding a one-time repair is clear. Taking a lump sum with no plan often turns into slow overspending.

Decision area	What to verify	What can go wrong
Eligibility and occupancy	All borrowers meet age and primary-residence rules	A non-borrowing partner may face limits on staying
Existing mortgage payoff	How much must be paid off at closing	Little cash left after payoff can erase the upside
Upfront fees	All fees itemized in writing, not waved away on a call	Rolled-in fees grow with interest
Rate structure	Fixed vs adjustable, index and margin, caps	Balance growth can outpace your expectations
Taxes and insurance plan	Realistic plan to pay them each year	Falling behind can trigger default
Repair and upkeep budget	Plan for ongoing maintenance plus big-ticket repairs	Deferred repairs can violate terms and cut resale value
Household timeline	How long you expect to stay, plus reasons you might move	Early exit can make upfront fees sting
Family plan	Whether heirs want the home and can refinance or pay off	Heirs may need a fast sale under pressure
Use of proceeds	Clear purpose and guardrails for spending	Risky investing can create a double hit

Questions to ask before you sign

Ask for straight answers, then ask for the paper that backs them up. A trustworthy lender won’t dodge these.

Costs and cash at closing

• After required payoffs and fees, how much cash do I receive at closing?
• Show the estimated total cost if I keep the loan for 3, 7, and 12 years.
• Is the rate fixed or adjustable, and what are the caps?

Rules that can end the loan

• What events make the loan due, and what counts as “moving out”?
• If one borrower enters a care facility, what timelines apply?
• What repairs are required now, and what happens if they run late?

How heirs can keep the home

• When the loan becomes due, what options do my heirs have to keep the home?
• Is there any prepayment penalty if we repay early?

Other options to compare

It’s smart to compare a reverse mortgage to at least one other path. You don’t need to pick the “perfect” plan. You need the plan you can live with.

Downsizing

Moving to a smaller place can free equity without interest accruing on a loan balance. It can also cut taxes, insurance, and upkeep.

Home equity loan or HELOC

If your income can handle payments, a home equity loan or line of credit can cost less. The trade is a monthly bill and a credit check.

Cash-out refinance

A refinance can replace your current mortgage with a larger one and give you cash back. It can fit when rates and your timeline line up.

How counseling can save you from mistakes

For HECMs, counseling with a HUD-approved counselor is required before you can proceed. That session is your chance to slow the process down and test the sales pitch against program rules. HUD HECM counseling information explains what counseling is meant to do.

Bring your monthly budget, the last two years of tax and insurance costs, and a list of the people who live in the home. Ask the counselor to walk through the due-and-payable triggers and the plan for a spouse or partner.

Your goal	When a reverse mortgage can fit	Other option to compare
Stop a monthly mortgage payment	Enough equity to pay off the existing loan and still receive usable proceeds	Refinance to a longer term with lower payment
Pay for a steady monthly shortfall	Plan to stay for years and can pay taxes and insurance	Downsize to cut fixed housing costs
Pay for a major repair	Savings won’t pay for it and a monthly-payment loan feels risky	Home equity loan with a defined payoff plan
Keep cash available for surprises	Line of credit matches your spending discipline	HELOC plus emergency fund savings
Stay in place longer	Home can be maintained without strain	Move to a smaller, easier home
Leave the home to family	Heirs have a realistic plan to refinance or pay the balance	Separate savings earmarked for heirs
Avoid a rushed sale	You need time and cash flow to wait out a rough patch	Short-term budget trim and temporary income plan
Reduce strain from caregiving costs	Funds will be used for home-based care while the borrower remains in the home	Review benefits and local assistance programs

Red flags that should slow you down

• Pressure to sign fast or “lock in” a deal on the spot
• Claims that you can stop paying taxes or insurance
• Pitches tied to an investment, annuity, or contractor you didn’t seek out
• Fees that aren’t itemized in writing
• Any hand-wave about leaving a spouse or partner off the loan

A practical takeaway

A reverse mortgage can be good when it buys you time in a home you plan to keep, while your budget can handle taxes, insurance, and repairs. It can be bad when it’s used as a last-ditch fix, when the fees swamp the benefit, or when the household plan is unclear.

Slow down, read the official rules, complete counseling with your full budget in hand, and compare offers from more than one lender. The best deal is the one you still feel good about years later.