Reverse mortgage pros and cons

Q: Is a reverse mortgage a good idea?

It can be a good idea for homeowners 62 or older who are house-rich but cash-poor and plan to stay in the home long term, because it provides tax-free cash with no required monthly payment. It is usually a poor idea if you plan to move soon, want to leave the home to heirs debt-free, or could struggle to keep paying property taxes, insurance, and upkeep.

Q: What is the downside of a reverse mortgage?

The main downsides are high upfront costs (an FHA mortgage insurance premium of about 2% of the home value plus origination and closing fees), interest that compounds and steadily erodes your remaining equity, a smaller inheritance for your heirs, and the risk of foreclosure if you fall behind on property taxes, homeowners insurance, or maintenance.

Q: Can you lose your home with a reverse mortgage?

Yes. Even though there is no monthly mortgage payment, you must keep the home as your primary residence and stay current on property taxes, homeowners insurance, and required upkeep. Failing to do so is the most common reason reverse mortgages go into foreclosure.

Q: Who owns the house with a reverse mortgage?

You do. You keep the title and remain the owner. The lender holds a lien for the loan balance, which is repaid when the last borrower sells, moves out for more than 12 months, or passes away.

Q: How much does a reverse mortgage cost?

Expect an upfront FHA mortgage insurance premium of about 2% of the home value, a lender origination fee capped at $6,000, plus appraisal, title, and closing costs. There is also an ongoing annual mortgage insurance premium of 0.5% on the loan balance. Most of these costs are financed into the loan rather than paid in cash.

Reviewed by the HomeEquityWise Editorial Team · Last updated May 2026 · How we calculate these numbers

A reverse mortgage lets homeowners aged 62+ turn home equity into tax-free cash with no required monthly mortgage payment. The trade-offs: high upfront fees, interest that compounds and shrinks your remaining equity, a smaller inheritance for heirs, and a real foreclosure risk if you stop paying property taxes, insurance, or upkeep. It fits house-rich, cash-poor seniors who plan to stay put — and rarely anyone planning to move soon.

Best for: homeowners 62+ who want income from their equity and intend to stay in the home for years.
Biggest perk: no monthly payment — the loan is repaid only when you sell, move out, or pass away.
Biggest risk: you can still lose the home by falling behind on taxes, insurance, or maintenance.
Costliest part: ~2% upfront FHA insurance + fees, then interest compounds on a rising balance.
Run your own numbers in the reverse mortgage calculator before deciding.

What a reverse mortgage actually is

The most common reverse mortgage is a Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA). Instead of you paying the lender, the lender pays you — as a lump sum, a line of credit, monthly payments, or a mix — using the equity in your home. You keep the title and stay the owner. The growing loan balance is repaid when the last borrower sells, permanently moves out (generally 12+ months, such as into long-term care), or passes away. To qualify, the youngest borrower must be at least 62, the home must be your primary residence, and you must complete HUD-approved counseling first.

Reverse mortgage pros and cons at a glance

Pros

No monthly mortgage payment. Cash flow improves immediately; repayment is deferred.
Tax-free proceeds. The IRS treats the money as loan proceeds, not income.
Stay in your home. You keep the title and live there as your primary residence.
Non-recourse protection. You (or your heirs) never owe more than the home is worth when it's sold — FHA insurance covers any shortfall.
Flexible payout. Lump sum, monthly income, or a line of credit whose unused portion can grow over time.
Federally regulated. HECMs require counseling and follow FHA rules built to protect borrowers.

Cons

High upfront cost. ~2% FHA mortgage insurance premium + origination (capped at $6,000) + closing costs.
Interest compounds. You make no payments, so the balance grows every month and eats into equity.
Smaller inheritance. Heirs inherit the home minus the loan balance — often much less than today.
Foreclosure risk. Miss property taxes, insurance, or upkeep and the loan can be called due.
Can affect benefits. Holding large cash proceeds may impact need-based programs like Medicaid or SSI (not Medicare or Social Security).
Complex, and a scam target. Seniors are heavily marketed to — counseling exists for a reason.

How the payout is calculated

Your maximum payout — the principal limit — comes from three inputs: your home's value (capped at the 2026 HUD limit of $1,209,750), a Principal Limit Factor (PLF) set by HUD based on the youngest borrower's age and the expected interest rate, and the costs and any existing mortgage subtracted off the top. Older borrowers and lower expected rates produce a higher factor — and a bigger payout.

Worked example

Say you're 70, your home is worth $450,000, and you owe nothing on it. At today's expected rates the PLF for a 70-year-old lands in the neighborhood of 40%, so the principal limit is roughly $180,000. Subtract about $11,000 in financed upfront costs and you'd have on the order of $169,000 available — as a lump sum, a credit line, or monthly draws. Lower the expected rate or add a few years of age and that number climbs; the exact figure changes with current rates, so plug your details into the reverse mortgage calculator for a live estimate.

Reverse mortgage vs. the alternatives

A reverse mortgage isn't the only way to tap equity. If you can comfortably make a monthly payment, a line of credit or a cash-out refinance is usually cheaper.

Option	Monthly payment	Age	Best for
Reverse mortgage	None required	62+	Staying long-term with no payment
HELOC	Interest-only, then rises	Any	Flexible, occasional borrowing
Cash-out refinance	One new fixed payment	Any	A single large need + rate reset

Who should — and shouldn't — consider one

Consider it if you're 62+, plan to stay in the home for the long haul, are comfortable keeping up taxes and insurance, and need income more than you need to leave the house debt-free. Think twice if you might move within a few years (the upfront costs won't pay off), you want heirs to inherit the home with maximum equity, or your budget is so tight that property taxes and insurance are already a stretch — that's exactly what triggers foreclosure.

Frequently asked questions

Is a reverse mortgage a good idea?

It can be, for homeowners 62+ who are house-rich but cash-poor and plan to stay long term — it gives tax-free cash with no required monthly payment. It's usually a poor idea if you plan to move soon, want to leave the home debt-free, or could struggle to keep paying taxes, insurance, and upkeep.

What is the downside of a reverse mortgage?

High upfront costs (~2% FHA insurance plus origination and closing fees), interest that compounds and erodes your equity, a smaller inheritance, and foreclosure risk if you fall behind on property taxes, insurance, or maintenance.

Can you lose your home with a reverse mortgage?

Yes. There's no monthly mortgage payment, but you must keep the home as your primary residence and stay current on property taxes, insurance, and upkeep. Failing to is the most common reason these loans go into foreclosure.

Who owns the house with a reverse mortgage?

You do — you keep the title. The lender holds a lien for the balance, repaid when the last borrower sells, moves out for more than 12 months, or passes away.

How much does a reverse mortgage cost?

An upfront FHA mortgage insurance premium of about 2% of the home value, a lender origination fee capped at $6,000, plus appraisal, title, and closing costs, and an ongoing 0.5% annual insurance premium on the balance. Most costs are financed into the loan.

Sources: CFPB — Reverse Mortgages · CFPB — What is a reverse mortgage? · HUD — HECM program · our methodology. Educational only — not financial advice; confirm with a HUD-approved counselor.