How Reverse Mortgages Work
A reverse mortgage allows homeowners, typically aged 60+, to borrow against their home equity while continuing to live in the property. Unlike a traditional mortgage where you make monthly payments to the lender, a reverse mortgage pays you. The loan balance grows over time as interest accrues, and repayment occurs when the borrower dies, sells the home, or permanently moves out. Borrowers can typically access 50-60% of their home's appraised value.
When It Makes Sense
Reverse mortgages suit asset-rich, cash-poor retirees whose wealth is concentrated in their home. If pension income falls short of living expenses, a reverse mortgage provides supplemental cash without requiring a move. It can fund healthcare costs, home modifications for aging in place, or simply improve quality of life. The key advantage is remaining in a familiar home and neighborhood.
Risks and Considerations
The primary risk is longevity: outliving the available equity. Falling property values can result in the loan balance exceeding the home's worth, though non-recourse provisions in many programs protect heirs from inheriting debt. Rising interest rates increase the loan balance faster. Reverse mortgages are incompatible with plans to leave the home to heirs. Before committing, compare alternatives: downsizing, home equity lines of credit, or selling and renting.