Reverse Mortgage Pros & Cons Guide

A comprehensive guide, exploring the PROS and CONS or advantages and disadvantages of reverse mortgages . 

In this guide below, you will find information about reverse mortgages. The guide is designed to help you make an informed decision as to whether a reverse mortgage is a proper fit for your current situation and your financial needs.

Couple reviewing pros and cons of a reverse mortgage


You have most likely seen the TV ads with celebrity spokespeople, such as Tom Selleck, Fred Thompson, Robert Wagner and Harry Winkler, promoting the benefits of a reverse mortgage. Maybe someone you know, such as a friend or relative has a reverse mortgage. Maybe you have a negative view of a reverse mortgage because someone told you they were bad and you took that persons advice at face value. Sadly, many of you reading this, who may be perfect candidates for a reverse mortgage, will choose not to get one because a misinformed advisor (financial planner, friend, family, CPA, attorney, etc)  presented incorrect information to you. Don’t you owe it to yourself to do your own research and draw your own conclusion as to whether or not a reverse mortgage is a solution to a need you may have? Your home is likely your largest asset. Spend the time it takes to determine if a reverse mortgage is the best solution to whatever your needs may be.

This guide will offer a straightforward approach on reverse mortgages. You will learn when a reverse mortgage could be a good option for you and also when you should most likely avoid a reverse mortgage.

Reverse Mortgage Products

A reverse mortgage is a loan, secured by a home, where repayment is deferred to a later date, typically when the home sells. It allows you to access a portion of the equity in your home in cash, monthly payments, or a line growing line of credit, to be used any way you see fit. One of the biggest benefits of a reverse mortgage is that monthly mortgage payments are not required.*

With a reverse mortgage, you can eliminate debt and use the funds to pay for life’s everyday expenses

Use a reverse mortgage to:

  • Pay off an existing mortgage or other debts (car loans, credit cards, etc)
  • Purchase a new home
  • Improve the accessibility of your home
  • Pay for medical care and long-term care needs
  • Make needed home improvements and repairs
  • Help a family member buy a home. Imagine gifting a child or grandchild the down payment for their first home.
  • Help family in need of some financial assistance

With an adjustable loan, you can choose to take your proceeds as a lump sum, monthly payment, line of credit or a combination of all.

*The borrower is responsible to pay property taxes, homeowners insurance and any other charge associated with the property.

When a reverse mortgage may not be a good option

You will hear reverse mortgage professionals discussing the benefits about reverse mortgages. We feels that it’s our responsibility to educate potential borrowers about all aspects of a reverse mortgage, positive and negative. Here are a some possible disadvantages to obtaining a reverse mortgage:

  1. You plan on moving in the near future. A reverse mortgage comes with upfront costs, so using it as a short-term tool, may not be in your best interest. If you plan on vacating within the next couple years, it may be worth exploring other loan options, such as a HELOC or another loan with low upfront closing costs.
  2. You wish to protect or legacy and leave as much as possible to your heirs.  A reverse mortgage is a negative-amortizing loan, which means that your balance will grow over time, reducing the overall value of your estate. If you take out a reverse mortgage, your heirs will receive your home with a loan on it. They will have the option to pay off the reverse mortgage and whatever equity remains after payoff and fees associated with the sell, will belong to the estate.  Although equity may remain after paying off a reverse mortgage, if you want to leave your home to your loved ones “free and clear,” then it may make sense to avoid a reverse mortgage.
  3. The home does not fit your long-term needs. Reverse mortgages were designed as a long-term solution to aging in home. Many homes may not meet your physical needs and because of that you may chose to move. Some examples are: two-story homes, homes will acreage that require a lot of upkeep, home in a location too far from services, such as hospitals, family, etc.

Who is the ideal candidate for a reverse mortgage?

Reverse mortgages are often viewed as a product of last resort.  Historically, the program may have been marketed to “needs based” borrowers more heavily than others.  “House rich, cash poor” is a term that has been used a lot to describe reverse mortgage borrowers. Although, there are still many cash strapped borrowers, they are not the only ones who can truly benefit from a reverse mortgage. When looking at the right candidate for a reverse, potential borrowers can generally be broken down into three categories: Need, Financial Plan and Lifestyle. Below is a list of qualities that we each of those three categories:


  • Age 62 or older
  • Need money now
  • Cash strapped, house rich, cash poor
  • Medical expenses piling up
  • Need to cover in-home health care


  • Age 62 or older
  • May live comfortably, but doesn’t have additional funds for home upgrades, travel or other expenditures, such as a new vehicle
  • Need additional monthly cash flow to improve quality of life

Financial Plan:

  • Age 62 or older
  • Still employed
  • Looking to defer Social Security draws
  • Still paying on a forward mortgage
  • Looking to set up an emergency fund (will likely never use their line of credit

Important Discussions to Have With Your Spouse, Heirs and Anyone Else You Feel May be Affected by Your Decision

We always recommend that you discuss your decision with your family, heirs and anyone else that you feel could aide you in your decision. Below is a list of topics that we feel are important and you should consider discussing:

  • Maintaining financial independence
  • Staying in your home and aging in place
  • Estate planning and impacts of the reverse mortgage
  • Loan repayment requirements for you and your heirs
  • Impact on Government benefits

Fees and Costs

Below is a breakdown of the fees associated with a reverse mortgage. As most loans, there are fees required to set up the loan. To see a breakdown of fees and costs for your specific scenario, please try our reverse mortgage calculator or contact us and we will be happy to run the numbers for you.

Origination FeeThis is a one-time fee paid to the lender or broker at closing. For HECMs, the maximum origination fee is 2% of the initial $200,000 in home value and 1% on the value thereafter, with a cap of $6,000. FHA does allow a minimum of $2,500, regardless of the home value. You should compare this fee from lender to lender.
Third Party FeesSetting up a reverse mortgage requires several parties to make the transaction come to fruition. Some of these closing costs include, title, escrow, appraisal, flood certs, etc.
Mortgage InsuranceThis is often the largest fee associated with a reverse mortgage. Mortgage Insurance Premiums (MIP) are collected in two forms: initial MIP, which is collected at closing and annual MIP, which is added to the loan balance over time. These fees will always be the same from lender to lender as they are set by HUD. This fee allows the loan to be non-recourse (you will never owe more than the value of the home).
Counseling FeeFHA requires that all borrowers attend counseling prior to incurring any expenses. This fee varies from counselor to counselor.

Understanding Interest Rates and How Interest Accrues

HECM reverse mortgages are either fixed rate or variable rate. Fixed rates require a one time lump sum draw at closing. The rate will then be fixed for the life of the loan. Variable rates are open ended credit, meaning proceeds can be taken as cash at closing, a monthly payment, line of credit, or a combination of all. The most popular variable rate is the HECM Annual. It will adjust once per year and has an annual adjustment cap of 2% and a lifetime cap of 5%. That means that they rate can never adjust more that 2% per year and will never go higher than 5% above the initial starting rate.

Interest on a reverse mortgage will accrue on an annual basis. Remember that reverse mortgages do not require a monthly payment.* Any unpaid interest is added to your loan balance over time. It’s important to note that interest on a reverse mortgage does compound. It’s always advisable to review the amortization schedule in the paperwork provided by your lender to see how the loan balance grows over time.

*The borrower is responsible to pay property taxes, homeowners insurance and any other charge associated with the property.

View our Reverse Mortgage Rates

Now that you understand how rates work, be sure to explore our reverse mortgage rates page to see all available programs we offer.

Are you ready to apply?

If so, run a scenario through our reverse mortgage calculator. After your results you will have an opportunity to request more information. You can also call one of our reverse mortgage advisors toll free at 1-888-888-4834.