A reverse mortgage can be a powerful financial tool for homeowners aged 62 and older, but as with just about everything, it comes with trade-offs. If you’re considering using your home equity to support your retirement, here’s a look at some pros and cons of getting a reverse mortgage.

What Is a Reverse Mortgage?

The Federal Housing Administration (FHA) created the reverse mortgage (also known as the Home Equity Conversion Mortgage, or HECM) as a way to let eligible homeowners access a portion of their home equity—without selling their home or making monthly mortgage payments. The loan is repaid when the homeowner moves, sells the home, or passes away.

Pros of a Reverse Mortgage:

1. No Monthly Mortgage Payments

Once approved, you won’t need to make monthly mortgage payments (you are still required to pay homeowners insurance, property taxes, homeowners dues, and maintain the home), which can significantly ease your cash flow in retirement.

2. The Ability To Stay in Your Home

You continue living in and owning your home while accessing the equity you’ve built. This can be a great benefit to those who want to stay in their home and age in place.

3. Tax-Free Funds

The money you receive is considered loan proceeds—not income—so it’s typically not taxed.

4. Flexibility in How You Receive Funds

You decide how you want to access your equity- you can choose a lump sum, monthly payments, a line of credit, or a combination of these that suits your needs.

5. Helps Protect Retirement Assets

Reverse mortgages can help you avoid having to withdraw from your retirement investments during down markets, giving your portfolio time to recover as the market recovers.

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Cons of a Reverse Mortgage:

1. Reduced Home Equity

As you borrow against your home, your equity decreases, which could impact your estate or limit your future financial options.

2. Costs and Fees

Reverse mortgages come with upfront costs, including origination fees, mortgage insurance, and closing costs.

3. Loan Must Be Repaid Eventually

The loan becomes due when you move out, sell the home, or pass away—potentially impacting your estate that is left to heirs.

4. Potential Impact on Government Benefits

While reverse mortgage proceeds aren’t taxed, they could affect eligibility for needs-based programs like Medicaid or Supplemental Security Income (SSI). It’s important to consult with a financial advisor to avoid unintended consequences.

5. Complexity & Misunderstanding

Reverse mortgages can be complex, and misunderstanding the terms could lead to confusion about repayment obligations or how the loan impacts your estate. It’s critical to work with a knowledgeable, trustworthy lender and to consider involving family or heirs in the conversation.

Final Thoughts

A reverse mortgage isn’t a one-size-fits-all solution, and it isn’t for everyone—but for the right homeowner, it can provide financial freedom, peace of mind, and flexibility during retirement. If you’re considering one, make sure you talk with a qualified advisor to ensure it aligns with your long-term goals.