Pros and Cons of Reverse Mortgages

Can you spot the $207,744 difference between these identical homes?

Financing is the difference!

Get the details in The 62+ Loan Homebuyers Guide.

55places Mortgage is a joint venture between Mutual of Omaha Mortgage and 55places.com.
Details here.

Subscribe to Our Newsletter

Get Weekly Updates

I agree that 55places and its affiliates, partner providers or agents may call, text, or email me about my inquiry, which may be made with automated means. I understand that my consent is not a prerequisite for buying a property. I may revoke my consent at any time by contacting optout@55places.com. Message/data rates may apply. I also agree to 55places.com’s Privacy Policy and Terms of Use.

A happy senior couple during the meeting with a financial consultant.

4 minute read

What You’ll Gain From Reading This Article: Reverse mortgages provide retirees with supplemental, tax-free income without monthly payments but come with high costs and potential impacts on home equity and government benefits. Learn about the importance of weighing these pros and cons to make an informed decision about a reverse mortgage.


The name “reverse mortgage” almost speaks for itself. These types of mortgages reverse a home’s equity accumulation through payment(s) to the homeowner. To understand the pros and cons of reverse mortgages, we’ll explain each element of the mortgage one step at a time.

A good starting point for these loan products is eligibility which includes applicants aged 62 years old and above. Another qualifying criteria is the value of a home’s equity and any preexisting debt on the property. The pros and cons of reverse mortgages differ from person to person. However, there are three financially important benefits.

A senior couple smiling after applying for a reverse mortgage.
  • It can eliminate the need for monthly rent or mortgage payments.
  • It allows for additional cash flow during retirement.
  • It is not considered taxable income.

The net gain is essentially an increased tax-free “income.” The terms of the loan cover the cost of that income. Additionally, for borrowers near taxable state estate values, a reverse mortgage may reduce net worth enough to bypass the tax. Costs of reverse mortgages aren’t necessarily prohibitive. Although, they are often cited as a disadvantage that outweighs the advantages of a reverse mortgage.

The reality is tenured reverse mortgages can never cost more than the value of the home. Also, tenured payments are perpetual, at least in the case of the Department of Housing and Urban Development (HUD) Home Equity Conversion Mortgages (HECM). These are very important loan features because they protect the homeowner and any heirs from unmanageable debt burden and longer than accounted-for lifespan.

A senior man at his desk taking notes about applying for a reverse mortgage.
  • There’s a relatively high upfront and backend cost.
  • The cost in proportion to the size of the loan is worth consideration.

Upfront costs for a reverse mortgage can be between 3-4% of a home’s determined value for HUD loans. This cost does not include monthly insurance premiums and assessed interest on the loan as it grows. As the reverse mortgage increases in size, the origination fees and mortgage premium decrease as a percentage of the total income received from the loan. Heirs of reverse mortgage holders be they a spouse or other beneficiaries become responsible for the loan in the event of death.

Naturally, equity values and interest rates at the time of the reverse mortgage are another factor to consider. Reverse mortgages have different payment structures called tenure, term and line of credit. In the case of line of credit, a Home Equity Line of Credit (HELOC) costs less upfront particularly if the interest rate is similar to a reverse mortgage line of credit.

The pros and cons of term and tenure reverse mortgages rest in:

  • the formula used by the lender
  • the age and life expectancy of the borrower
  • the market value of the home at the time of the mortgage
  • the specific terms of the loan

In summary, reverse mortgages help homeowners convert home equity into cash. Payment on reverse mortgages is not due to the lender until after leaving or selling the home, and the loans are available in both fixed and variable interest rates. The primary feature of these types of mortgages is their distribution of supplementary income during retirement. The built in safeguards of reverse mortgages can also protect homeowners from foreclosure, an advantage that allows the homeowner to remain in the home indefinitely.

Discover what’s next.

To learn more information or connect with a real estate expert, contact us today.

Can you spot the $207,744 difference between these identical homes?

Financing is the difference!

Get the details in The 62+ Loan Homebuyers Guide.

55places Mortgage is a joint venture between Mutual of Omaha Mortgage and 55places.com.
Details here.

We're here to help! (800) 928-2055

Call us to speak with a customer service representative.

Subscribe to Our Newsletter

Get Weekly Updates

I agree that 55places and its affiliates, partner providers or agents may call, text, or email me about my inquiry, which may be made with automated means. I understand that my consent is not a prerequisite for buying a property. I may revoke my consent at any time by contacting optout@55places.com. Message/data rates may apply. I also agree to 55places.com’s Privacy Policy and Terms of Use.

The grounds of Gatherings at Potomac Station in Leesburg, Virginia.

New Active Adult Communities Added to 55places.com

In this comprehensive roundup, we bring you the latest additions to 55places.com—a trusted resource for exploring active adult communities. Over the past 30 days, several new communities have joined the ranks, each offering different amenities and locations.

A golf cart outside the golf club at CountryPlace in Pearland, Texas.

Retire on the Links in Houston, TX: Golf Course Homes for Sale

Active adults who are lifelong golfers or newfound golf enthusiasts can easily enjoy the sport when their neighborhood contains a golf course. Homebuyers who desire a golf course lifestyle and want to remain near the heart of a big city can find a great fit at one of these exceptional Houston area communities.

Moving to South Carolina? Here’s Everything You Need to Know

South Carolina is a state known for its incredible coastal beauty, charm, hospitality, acclaimed golf courses, and vibrant culinary scene that’s full of rich Southern dishes. It’s also home to some of the most desirable retirement destinations in the country–and for good reason.

Close up on a tiny wood home model on green grass, a representation of the real estate market.

Real Estate Summary: This Month in the 55+ Housing Market

This month, we brought in more than beautiful flowers. There are also lower mortgage rates and new homes for the housing industry! Below is a more in-depth breakdown of what happened and why now is an excellent time to enter the market.

A side-by-side image of Savannah, Georgia and Atlanta, Georgia.

Savannah vs Atlanta: Which Is Better For Your Retirement?

Georgia is a popular destination for active adults looking to retire–and Savannah and Atlanta are two of the state’s biggest draws. So how do you know which city is better for you? We’ve put together a guide to offer some helpful insight into both cities to help decide which one might be best for your retirement.

View down the the street of Downtown Charleston, South Carolina at sunset.

The Best Places to Retire in South Carolina

South Carolina is known for having some of the best golf courses in the country, but that’s not all it has to offer active adults. The state has a rich history and culture, a wide selection of entertainment and recreation, and miles of beaches and coastal living.

About 55places

We’re changing the way people 55 and older are searching for their perfect next place. With a national network of hand-selected real estate experts, plus comprehensive information, unbiased content, and on-the-go insight about thousands of communities across the country, we’re a trusted resource paving the way from here to home. Whether you’re interested in a low-maintenance single-level residence, an active lifestyle or age-qualified community, an intimate enclave, or anything in between, we can help you make your next move the best one yet.

Scroll to Top