A reverse mortgage lets you borrow against your home's equity without a monthly payment, but the debt grows over time and can shrink what your heirs inherit

The main appeal is straightforward: you stay in your home, receive money (as a lump sum, monthly payments, or a credit line), and owe nothing until you move, sell, or pass away. But that simplicity masks real costs. Interest compounds on the loan balance every month you don't pay it back. Fees are substantial—often $6,000 to $15,000 upfront. And because the debt grows while you live there, the amount owed can eventually exceed what the home is worth, especially if you live a long time or home values fall.

Whether a reverse mortgage makes sense depends entirely on your situation: how long you plan to stay, whether you have other income sources, what you need the money for, and whether you care what your heirs receive. It is not a solution for everyone, and it is not a solution for emergencies.

Key Takeaways

  • A reverse mortgage charges interest and fees that compound over time, so the amount you owe grows every month, even though you make no payments.
  • Upfront costs typically run $6,000 to $15,000 and include origination fees, appraisal, title insurance, and closing costs.
  • You must be at least 62 years old, own your home outright or have a small mortgage balance, and live in the home as your primary residence.
  • The loan becomes due when you move out, sell the home, or pass away—at which point your heirs must repay it or the lender can foreclose.
  • A reverse mortgage reduces the equity you can leave to heirs and can affect your may be able to access for means-tested programs like Medicaid.

How the debt grows and what you actually owe

With a traditional mortgage, you pay down the principal each month. With a reverse mortgage, the opposite happens. Every month, interest accrues on the amount you have borrowed. That interest is added to the loan balance. Next month, you pay interest on the original amount plus the interest from the previous month. This is called compounding, and it means your debt accelerates the longer you live in the home.

The interest rate on a reverse mortgage is typically higher than a conventional mortgage—often 1 to 3 percentage points above the current market rate. If you borrow $200,000 at 7% interest and make no payments, after five years you will owe roughly $280,000. After ten years, closer to $395,000. If your home is worth $400,000 and you live another 20 years, you could owe more than the home is worth.

When you die or move, the lender sends a notice to your heirs. They then have a choice: repay the loan in full (usually by selling the home) or let the lender foreclose. If the home sells for more than the loan balance, your heirs keep the difference. If it sells for less, the lender absorbs the loss—but your heirs get nothing.

Upfront and ongoing costs that reduce what you receive

Before you receive a single dollar, you pay closing costs. These include an origination fee (typically 1% to 2% of the loan amount, capped at $6,000 by federal rules), an appraisal ($300 to $500), title insurance ($500 to $1,500), and other closing costs ($1,000 to $3,000). Total upfront cost is often $6,000 to $15,000, depending on your home's value and location.

These fees are usually rolled into the loan balance, meaning you pay interest on them for as long as you carry the debt. If you borrow $200,000 and pay $10,000 in fees, you are actually borrowing $210,000 and paying interest on all of it.

You also pay an annual mortgage insurance premium (MIP) if you choose a line of credit or monthly payments—typically 0.5% of the loan balance per year. This is added to your debt each year, compounding like the interest.

When a reverse mortgage might make sense

A reverse mortgage is most useful when you have a specific, large expense and no other way to cover it—and you plan to stay in your home for at least five to seven more years. Common scenarios include paying off a remaining traditional mortgage, covering major home repairs, or supplementing retirement income when other sources have run out.

It can also make sense if you are house-rich and cash-poor, own your home outright, and want to stay there as long as possible. The monthly payment option (called a tenure payment) provides steady income for life, which appeals to some retirees who have no pension and modest savings.

A reverse mortgage is not a good fit if you plan to move within five years, if you need the money for ongoing expenses you could cover another way, or if leaving an inheritance is important to you. It is also a poor choice if you are considering it because you are behind on property taxes or homeowners insurance—those obligations do not go away, and you must keep paying them or risk foreclosure.

How a reverse mortgage affects Medicaid and other benefits

If you receive Medicaid, a reverse mortgage can create problems. The money you receive counts as income in the month you receive it, which may disqualify you temporarily. If you take a lump sum, that entire amount counts as a resource (asset) for 12 months, which can make you ineligible for Medicaid during that time.

If you take monthly payments or a line of credit, the rules are more forgiving—only the amount you actually withdraw counts as income that month. But you should speak with a Medicaid planner or elder law attorney before signing anything, because the rules vary by state and by your specific situation.

Supplemental Security Income (SSI) has similar rules. Veterans benefits and other means-tested programs may also be affected. The cost of a consultation with an elder law attorney ($200 to $500) is worth it if you are on any government benefit.

What happens to your home and your heirs' options

You retain the title to your home and can leave it to your heirs in your will. But the reverse mortgage is a lien against the property, meaning the lender has a legal claim on it. When you pass away, your heirs inherit the home subject to that lien.

Your heirs then have roughly six months to decide what to do. They can repay the loan in full and keep the home. They can sell the home, use the proceeds to repay the lender, and keep any remainder. Or they can walk away and let the lender foreclose—in which case they lose the home but owe nothing more.

If the home has appreciated significantly and the loan balance is small relative to the home's value, your heirs may come out ahead. If the home has lost value or you lived a very long time, they may inherit little or nothing. This is the trade-off: you get money to live on now, and your heirs' inheritance shrinks by the amount you borrowed plus all the interest and fees.

Alternatives to consider before committing

A home equity line of credit (HELOC) or home equity loan lets you borrow against your home's equity without the high fees and compounding interest of a reverse mortgage. You do have to make monthly payments, but the interest rate is usually lower and you have more control over how much you borrow. The downside is that you must have income to may have access to, and the lender can freeze or close the line if your home value drops or the economy shifts.

Downsizing to a smaller, less expensive home frees up cash without debt. You move, but you eliminate the mortgage and reduce property taxes and maintenance costs. This works well if you are willing to leave your current neighborhood or if your home is much larger than you need.

A sale-leaseback arrangement lets you sell your home to an investor and rent it back. You get a lump sum and stay in the home, but you are now a renter with no equity and no inheritance to leave. This is rare and requires careful legal review.

If you need money for a specific, one-time expense, a personal loan or line of credit from a bank may have lower fees, even if the interest rate is higher. If you need ongoing income, working part-time, drawing from retirement accounts, or adjusting your spending may be simpler than taking on debt.

Red flags and predatory practices to watch for

Reverse mortgages have a history of targeting older adults with limited financial literacy. Watch for these warning signs: a lender who pressures you to decide quickly, who suggests using the money for investments or to pay off credit cards, who downplays the fees or the compounding interest, or who encourages you to borrow the maximum amount available.

Legitimate lenders require a counseling session with a HUD-approved counselor before you can close. This counselor is independent and works for you, not the lender. If a lender tries to skip this step or rushes you through it, that is a red flag. You should also have an attorney review the documents—not the lender's attorney, but your own.

Be wary of anyone who suggests a reverse mortgage as a way to pay for long-term care, fund a business, or cover ongoing medical expenses. These are not appropriate uses, and the debt will grow faster than the money solves the problem.

Frequently Asked Questions

Can I lose my home if I take out a reverse mortgage?

You cannot lose your home straightforward because you took out a reverse mortgage. But you can lose it if you stop paying property taxes, homeowners insurance, or HOA fees—those obligations do not disappear. You can also lose it if you move out permanently or sell it, because the loan becomes due. If you cannot repay it, the lender can foreclose.

What if I want to move or downsize after taking out a reverse mortgage?

The loan becomes due when ready when you move out or sell the home. You will have to repay the full balance (principal, interest, and fees) from the sale proceeds. If you move to a nursing home or assisted living, the loan is also due, even if you keep the home and rent it out.

Can my spouse stay in the home if I pass away?

If your spouse is on the loan as a borrower, they can stay and the loan does not become due. If they are not on the loan, they have the same options as any heir—repay the loan, sell the home, or let the lender foreclose. This is why it is critical that both spouses be listed as borrowers if you are married.

What is the difference between a reverse mortgage and a home equity loan?

A home equity loan requires monthly payments and has a fixed term (usually 5 to 15 years). A reverse mortgage requires no payments while you live in the home, but the debt grows over time and is due when you move or pass away. A home equity loan is usually cheaper if you can afford the payments; a reverse mortgage is useful if you cannot.

Will a reverse mortgage affect my taxes?

The money you receive from a reverse mortgage is not taxable income. However, the interest you pay may be tax-deductible if you itemize deductions—but only the interest on the portion of the loan used to buy, build, or improve your home. Consult a tax professional, because the rules are complex and depend on how you use the money.