Reverse Mortgage

What are the benefits of a reverse mortgage?

If your net worth is tied to your home, and you are considering taking a reverse mortgage, you should weigh the benefits of a reverse mortgage, and situations when it makes sense.

3 min read

Many people nearing retirement age are unfamiliar with the concept of reverse mortgages. Reverse mortgages are a special type of loan that allows senior homeowners to tap into their home equity. If you don’t have a lot of cash savings, a reverse mortgage can provide several benefits.

Reverse mortgages can provide seniors with a steady source of income during their retirement years, and they can be used for any purpose, including paying off debts, supplementing retirement income, or making home repairs. When you borrow a reverse mortgage, you won’t be required to move; you get to keep your mortgage and receive payments either as a lump sum, payment plan, or line of credit.

What is a reverse mortgage?

A reverse mortgage is designed for seniors who own their homes and want to use the equity in their homes to create additional income. It allows the homeowner to remain in the home while still accessing the accumulated equity. The loan becomes due when the homeowner moves out, sells the property, or dies.

Homeowners must meet certain qualifications, including being at least 62 years of age and having sufficient equity in their homes. Although the credit score is not a factor, the lender will check your credit report to know your payment history and past defaults.

Benefits of a reverse mortgage

No monthly mortgage payments

Reverse mortgages do not require borrowers to make monthly mortgage payments. Instead, the loan becomes due when the homeowner moves to a nursing facility, transfers title ownership or dies. This can be a huge relief for seniors who have insufficient incomes to afford the monthly mortgage payments.

You remain the owner of your home

You get to keep your home when you take a reverse mortgage. This allows seniors to stay in their homes for as long as they want and gives them peace of mind knowing that they will not have to move out of their homes due to financial reasons.

Several disbursement options

When you take a reverse mortgage, you can choose several disbursement options including lump sum payments, regular monthly payments, and line of credit. This gives seniors more flexibility in how they receive their money.

No income or credit qualification requirements

Unlike traditional mortgages, you don’t need a good credit score to be eligible for a reverse mortgage. However, the lender will check your credit report to see your payment history over the years. This makes it easier for those who are retired or have lower incomes to qualify for a loan.

You don’t have to move

If you don't want to move, a reverse mortgage can be a great way to get the money you need without having to leave your home. You can collect disbursements and still keep your home.

Tax-free money

Since the IRS considers a reverse mortgage as a loan, you won’t pay taxes on the payments you receive. Also, you won't be required to declare money from a reverse mortgage as income.

Federally insured

The reverse mortgage is federally-insured, meaning that if the lender goes out of business, your loan is still protected. This gives seniors peace of mind knowing that their loan is secure and they are unlikely to incur any losses.

Pay off non-mortgage debt

Reverse mortgages can be a great way to pay off non-mortgage debt. This is because the money from the reverse mortgage can be used for any purpose, and you don't have to declare it as income. So, if you have high-interest credit card debt or other debts that are eating into your monthly budget, a reverse mortgage can be a great way to pay them off quickly.

Afford large purchases

A reverse mortgage can be a great way to afford large purchases, such as a new car or a new home. You can use the money to pay for the large purchase outright, without having to worry about taking out a loan or using your credit card. This can be a huge advantage, especially if you are looking to buy a new car and don't have the cash saved up.

Supplement fixed retirement income

A reverse mortgage can be a good source of retirement income to help you pay your living expenses. You can use the reverse mortgage payments to pay for groceries, utilities, medical bills, and other expenses. This can help seniors who are on a fixed budget and need some extra money each month.

No restrictions on how you use the funds

You can use the reverse mortgage for whatever purpose you want, such as home repairs, medical bills, or simply to pay everyday expenses. This gives seniors much-needed flexibility and financial freedom

Heirs have options

If the homeowner dies or moves out of the home, the loan is repaid either through the sale of the home or through a payment from the homeowner's estate. If the home is sold, the heirs will receive any money left over after repaying the reverse mortgage loan. If there are not enough funds to repay the loan, then the lender will take back the home.

Protection from Loss

When you take a reverse mortgage, you are protected from declines in property prices. The home value won't be affected if the market drops. If the home is sold for less than what's owed on the loan, the lender will not pursue any additional payments from you or your heirs.

How to get the most out of your reverse mortgage

If you are considering taking a reverse mortgage, there are certain things you can do to get the most out of the reverse mortgage:

There are a few things you can do:

Shop around for the best deal. Compare several mortgage lenders to know their interest rates, fees, and loan terms before signing up for a reverse mortgage.

Borrow only what you need. It's important to only borrow the amount you need for a specific purpose so that you don’t end up with too much debt.

Use the money wisely. The money from a reverse mortgage can be used for whatever purpose you choose, so make sure you use it wisely. Try to think about what will give you the most peace of mind and financial security in retirement.

Keep up with your payments. Make sure you keep up with your financial obligations, including property taxes, homeowner insurance, and homeowner association fees, so that you don't end up in default and risk foreclosure.

Should you get a reverse mortgage?

There are certain situations when a reverse mortgage could make sense. Here are instances when a reverse mortgage is a good idea:  

You need more money in retirement to cover expenses

You want to stay in your home without having to make a mortgage payment

You want greater financial freedom and flexibility

You want the peace of mind that comes with knowing you will not outlive your savings.

However, it is important to weigh all of the pros and cons of a reverse mortgage before you apply for a reverse mortgage. Make sure to consider your financial situation carefully and speak with a HUD-approved counselor to make sure you are making the best decision for your retirement.


A reverse mortgage can help senior homeowners get extra income without having to sell their homes or make mortgage payments. By understanding the benefits and risks, you can make an informed decision about whether a reverse mortgage is right for you.