Reverse Mortgage Pros and Cons: What Seniors Need to Know in 2026

If you’re a homeowner approaching or in retirement, you’ve likely heard about reverse mortgages as a way to tap into your home equity. The concept sounds appealing: get cash from your home without selling it or making monthly payments. But reverse mortgages are complex financial products with significant costs and long-term implications that deserve careful consideration.

This guide breaks down the real pros and cons of reverse mortgages so you can decide whether one makes sense for your retirement plans — or whether an alternative might serve you better.

What Is a Reverse Mortgage?

A reverse mortgage is a loan that allows homeowners aged 62 or older to convert a portion of their home equity into cash. Unlike a traditional mortgage where you make monthly payments to the lender, a reverse mortgage works in the opposite direction — the lender pays you, and the loan balance grows over time.

The most common type is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). HECMs account for the vast majority of reverse mortgages and come with federal protections that private reverse mortgages don’t offer.

The amount you can borrow depends on three main factors: your age (older borrowers qualify for more), your home’s appraised value, and current interest rates (lower rates mean higher loan amounts). For 2026, the maximum HECM lending limit is $1,249,125 — an increase from $1,209,750 in 2025.

How Reverse Mortgages Work

With a reverse mortgage, you borrow against your home equity while continuing to live in and own your home. Here’s the basic mechanics:

You receive funds as a lump sum, monthly payments, a line of credit, or a combination of these options.

No monthly payments required. Instead of paying the lender each month, the loan balance grows as interest and mortgage insurance premiums accrue on the amount you’ve borrowed.

You remain responsible for property costs. You must continue paying property taxes, homeowners insurance, and maintenance costs. Failure to do so can result in foreclosure.

The loan becomes due when you sell the home, move out of the home as your primary residence for more than 12 months, or pass away.

Non-recourse protection. You (or your heirs) will never owe more than the home is worth when it’s sold, even if the loan balance exceeds the home’s value. FHA insurance covers any shortfall.

Pros of Reverse Mortgages

No monthly mortgage payments. This is the biggest draw. You don’t have to make any payments as long as you live in the home and keep up with property taxes, insurance, and maintenance. For seniors on fixed incomes, eliminating a mortgage payment can provide significant financial relief.

Stay in your home. Unlike selling and downsizing, a reverse mortgage allows you to access your equity while continuing to live in the home you know and love. You maintain full ownership and can stay as long as you meet the loan obligations.

Flexible payout options. You can receive funds as a lump sum (useful for paying off an existing mortgage or major expenses), monthly payments (to supplement retirement income), a line of credit (for emergencies and flexibility), or a combination of these.

Growing line of credit. The unused portion of a HECM line of credit grows over time at the same rate as the interest charged on the loan. This means the amount available to you increases each year, even if your home value stays flat or declines.

Tax-free proceeds. Reverse mortgage funds are considered loan proceeds, not income, so they’re generally not taxable. However, consult a tax professional for your specific situation.

Non-recourse protection. Neither you nor your heirs will ever owe more than the home’s value at the time of sale. If the loan balance exceeds what the home sells for, FHA insurance covers the difference — the lender can’t come after other assets.

No credit score minimums. Unlike HELOCs and home equity loans that typically require credit scores of 620 or higher, HECM reverse mortgages don’t have formal credit score requirements. Approval is based primarily on age, equity, and ability to pay property costs.

Protections for non-borrowing spouses. If one spouse is under 62, they can be listed as an “eligible non-borrowing spouse” and may be allowed to remain in the home after the borrowing spouse passes away, under certain conditions.

Cons of Reverse Mortgages

High upfront costs. Reverse mortgages come with significant fees: a 2% upfront mortgage insurance premium, origination fees up to $6,000, plus standard closing costs of 3-5% of the loan amount. On a $400,000 home, you might pay $20,000 or more in total costs.

Loan balance grows over time. Because you’re not making payments, interest and mortgage insurance premiums compound on your loan balance. A $100,000 loan at 6% interest could grow to over $180,000 in 10 years, even if you don’t borrow any additional funds.

Erodes home equity. As the loan balance increases, your remaining equity decreases. This leaves less for your heirs and fewer options if you need to move to assisted living or want to relocate.

Still responsible for property costs. Many seniors mistakenly believe a reverse mortgage eliminates all housing costs. You must continue paying property taxes, homeowners insurance, HOA fees (if applicable), and maintenance. Failure to pay can result in foreclosure — even with a reverse mortgage.

Complexity and confusion. Reverse mortgages have more moving parts than traditional mortgages. The fees, interest accrual, payout options, and repayment triggers can be confusing, which is why HUD requires mandatory counseling before you can apply.

May affect government benefits. While reverse mortgage proceeds don’t count as income for Social Security or Medicare, they could affect eligibility for need-based programs like Medicaid or Supplemental Security Income (SSI) if proceeds aren’t spent in the month they’re received.

Limits mobility. If you need to move — whether for health reasons, to be closer to family, or to downsize — the loan becomes due. If your loan balance has grown significantly, you may have little equity left after repayment.

Less inheritance for heirs. Your heirs will inherit a home with a loan attached. They’ll need to repay the loan (typically by selling the home or refinancing) to keep the property. Any equity consumed by the reverse mortgage is equity they won’t receive.

Reverse Mortgage Costs and Fees

Understanding the full cost of a reverse mortgage is essential. Most fees can be rolled into the loan (meaning you don’t pay out of pocket), but they still add to your loan balance and accrue interest over time.

Upfront Mortgage Insurance Premium (UFMIP): 2% of your home’s appraised value or the HECM lending limit ($1,249,125 for 2026), whichever is less. On a $500,000 home, this equals $10,000.

Origination fee: Lenders can charge $2,500 or 2% of the first $200,000 of home value (whichever is greater), plus 1% of value above $200,000. The maximum is capped at $6,000. Example: On a $400,000 home, the origination fee would be $4,000 + $2,000 = $6,000.

Closing costs: Similar to a traditional mortgage, expect to pay for appraisal ($450-$600), title search and insurance, recording fees, credit report, and other third-party fees. Total closing costs typically run 3-5% of the loan amount.

HUD counseling: Required counseling sessions typically cost $125-$200, though counselors must waive fees for those who can’t afford them.

Annual mortgage insurance premium: 0.5% of the outstanding loan balance each year, added to your loan balance monthly.

Interest: Accrues on your loan balance at either a fixed or adjustable rate. Variable rates are tied to the CME Term SOFR index. As of early 2026, total interest rates (including the 0.5% annual MIP) typically range from 6% to 8%.

Servicing fees: Some lenders charge monthly fees up to $30-$35 to manage your loan, though many lenders have eliminated these fees.

Requirements to Qualify

To qualify for a HECM reverse mortgage, you must meet these requirements:

Age: At least one borrower must be 62 years old or older. (Some proprietary reverse mortgages accept borrowers as young as 55.)

Home ownership: You must own the home outright or have substantial equity. If you have an existing mortgage, it must be paid off with reverse mortgage proceeds at closing.

Primary residence: The home must be your primary residence. You cannot use a reverse mortgage on a vacation home or investment property.

Property type: Eligible properties include single-family homes, 2-4 unit properties (if you live in one unit), HUD-approved condos, and manufactured homes meeting FHA requirements.

Financial assessment: Lenders evaluate your willingness and ability to pay property taxes, insurance, and maintenance. This may include reviewing credit history and income sources.

Property standards: The home must meet FHA minimum property requirements, similar to FHA purchase loans. Required repairs may need to be completed before closing.

Counseling: You must complete a counseling session with a HUD-approved counselor before applying. This ensures you understand the loan terms and have considered alternatives.

Types of Reverse Mortgages

Home Equity Conversion Mortgage (HECM): The most common type, insured by the FHA. HECMs offer the most borrower protections and flexible payout options but are subject to the $1,249,125 lending limit and require the borrower to be at least 62.

Proprietary (Jumbo) Reverse Mortgages: Offered by private lenders for homeowners with high-value properties that exceed HECM limits. These can allow borrowers to access more equity (up to $4 million with some lenders) and may accept borrowers as young as 55. However, they lack FHA insurance protections.

Single-Purpose Reverse Mortgages: Offered by some state and local governments and nonprofits for specific purposes like home repairs or property taxes. These typically have lower costs but very limited uses.

HECM for Purchase: A specialized HECM that allows seniors to buy a new home using reverse mortgage financing. You provide a down payment (typically 50-60% of the purchase price), and the reverse mortgage covers the rest — with no monthly payments required.

How You Can Receive Funds

With a HECM, you have several options for receiving your funds:

Lump sum: Receive all available funds at closing. This option is required for fixed-rate HECMs and is best if you need to pay off an existing mortgage or have immediate large expenses.

Monthly payments (tenure): Receive equal monthly payments for as long as you live in the home as your primary residence. Provides predictable income but may result in less total money if you live longer than expected.

Monthly payments (term): Receive equal monthly payments for a fixed period you choose (e.g., 10 years). Payments stop after the term ends, but you can remain in the home.

Line of credit: Access funds as needed, up to your credit limit. You only pay interest on what you borrow. The unused portion grows over time, increasing your available credit. This is the most flexible option and popular among borrowers who don’t need immediate cash.

Combination: Mix any of the above. For example, take a small lump sum to pay off your existing mortgage, then set up a line of credit for future needs.

When the Loan Comes Due

A reverse mortgage doesn’t require monthly payments, but the loan eventually must be repaid. The loan becomes due and payable when:

You sell the home. The loan is repaid from the sale proceeds, and any remaining equity goes to you (or your heirs).

You move out. If the home is no longer your primary residence for more than 12 consecutive months (including moving to assisted living), the loan becomes due.

You pass away. Your heirs have options: repay the loan and keep the home, sell the home and keep any remaining equity, or walk away if the loan balance exceeds the home’s value (the non-recourse protection ensures they owe nothing more).

You fail to meet loan obligations. Not paying property taxes, homeowners insurance, or maintaining the property can trigger default and foreclosure — even with a reverse mortgage.

Borrowers typically have 6-12 months to repay or work out a solution after the loan becomes due, though the exact timeline depends on the circumstances.

What Happens to Your Heirs

One of the biggest concerns about reverse mortgages is the impact on inheritance. Here’s what your heirs need to know:

They won’t be surprised. Lenders are required to notify heirs after the borrower passes away and provide information about their options.

They can keep the home by repaying the loan in full. This typically means refinancing into a traditional mortgage or using other funds.

They can sell the home and keep any equity remaining after the loan is repaid. If the loan balance is $300,000 and the home sells for $400,000, they keep $100,000 (minus selling costs).

They’re protected if the loan exceeds the home’s value. Thanks to FHA insurance and non-recourse protection, heirs will never owe more than 95% of the home’s appraised value at the time of sale. If the loan balance is $400,000 but the home is only worth $350,000, they can walk away owing nothing.

They have time. Heirs typically have 30 days to notify the lender of their intentions and up to 6 months (with possible extensions) to complete the sale or refinance.

Alternatives to Reverse Mortgages

Before committing to a reverse mortgage, consider these alternatives that may better fit your situation:

Home Equity Line of Credit (HELOC): A HELOC lets you borrow against your equity as needed, similar to a reverse mortgage line of credit, but at lower cost. The trade-off: you must make monthly payments, and you’ll need to qualify with good credit (typically 620+) and sufficient income. Learn more about HELOCs.

Home Equity Loan: Borrow a lump sum against your equity at a fixed interest rate. Lower closing costs than a reverse mortgage, but requires monthly payments and income/credit qualification.

Cash-Out Refinance: Replace your current mortgage with a larger one and pocket the difference. This resets your mortgage clock and requires monthly payments, but may offer lower interest rates than a reverse mortgage. You can learn more about HELOCs vs cash-out refinancing.

Downsizing: Sell your current home, buy something smaller and less expensive, and pocket the difference. This eliminates debt entirely and may reduce your ongoing housing costs (taxes, insurance, maintenance).

Renting out a room: If you have extra space, renting to a tenant can provide monthly income without borrowing against your home.

Government assistance programs: Property tax relief programs, utility assistance, and other benefits may be available for seniors that reduce your need to tap home equity.

Who Should Consider a Reverse Mortgage

A reverse mortgage may be a good fit if:

• You plan to stay in your home long-term (10+ years)
• You have significant equity but limited retirement income
• You want to eliminate your current mortgage payment
• You don’t qualify for a HELOC or home equity loan due to limited income
• You want a financial safety net you can access as needed
• Leaving maximum inheritance isn’t a priority
• You can comfortably afford property taxes, insurance, and maintenance

A reverse mortgage probably isn’t right if:

• You might need to move in the next few years
• You want to leave your home free and clear to heirs
• You can’t reliably pay property taxes and insurance
• You have a spouse under 62 who isn’t listed as an eligible non-borrowing spouse
• You only need funds short-term (a HELOC would likely be cheaper)
• You have other assets you could tap instead

Frequently Asked Questions