Reverse mortgage pros and cons
What a HECM, the FHA-insured reverse mortgage for homeowners 62 and older, gives you, what it costs you, and how to spot a scam.
Your monthly budget and the years you expect to remain at home decide how reverse mortgage pros and cons stack up. Homeowners 62 and older can turn home equity into cash through a reverse mortgage, with no monthly mortgage payment due. Home equity means the dollar value of your house after you subtract any mortgage debt you still carry. Before you study the figures, you can read up on how a reverse mortgage works. The standard reverse mortgage that the federal government insures is called a Home Equity Conversion Mortgage, or HECM. The government backed 22,318 of these loans during the period from October 2025 to August 2026.
Reverse mortgage advantages: the gains of borrowing against your house
You get cash from the loan and go on living in the home, with no monthly loan payment due while you're there. An existing small mortgage gets paid off right away by the new loan. The principal limit is the full amount you can borrow before subtracting fees or old debt. The figure is set by your age, your home value and the current reverse mortgage rates.
The federal cap on home value for 2026, based on HUD HECM data, is $1,249,125, which is up from $1,209,750 in 2025. If your home is worth more, you can consider a jumbo reverse mortgage instead. Try out your own figures with our reverse mortgage calculator. At a 7.125% expected rate, older borrowers can access a bigger portion of their home value. It's built from a 5.00% 10 year Treasury rate on October 23, 2026 plus a 2.125% median lender margin recorded in August 2026.
| Borrower age | Portion of home value you can get at a 7.125% expected rate |
|---|---|
| 62 | 30.7% |
| 75 | 39.4% |
| 85 | 50.7% |
In the first 12 months, your withdrawals are capped at 60% of the total loan pool you qualify for. A larger withdrawal in year 1 is allowed only for paying off a current mortgage and closing fees, and then 10% on top.
Reverse mortgage disadvantages: the downsides and costs
Upfront costs for this type of borrowing are a lot higher than for a regular home loan. The lender charges an origination fee to set everything up, and you'll pay that. The rule in 24 CFR 206.31 sets the fee at 2% of the first $200,000 of your home value, and then 1% on the rest. The fee is at least $2,500 and it tops out at $6,000. An upfront federal mortgage insurance charge also applies: it's 2% of your home value, capped at the HECM lending limit. Extra reverse mortgage closing costs cover an appraisal, title work and recording, and they total roughly $3,000, as reported by the Consumer Financial Protection Bureau.
Instead of going down, your loan balance gets bigger each month. What you owe increases by the interest plus a yearly insurance charge of 0.5%. For loans insured in August 2026, the median interest rate was 6.0%, based on 1,917 loans. A reverse mortgage amortization calculator shows you how the debt builds. A growing balance shrinks the equity left for heirs, which is why you should discuss with your family how a reverse mortgage after death works.
Falling behind on property taxes, your homeowners insurance or needed repairs can still cost you the house. A lump sum of loan cash sitting in the bank can also hurt your chances of qualifying for need based government benefits.
Is a reverse mortgage a good idea for you?
If you're staying put a long time and can pay for property taxes, insurance and maintenance, this loan is a good match. The Federal Trade Commission says you need to own your home free and clear, or carry a small mortgage that the loan can wipe out. Before you apply, look over the rules for a reverse mortgage by state and the reverse mortgage requirements.
If you might move soon, this is a poor choice, since upfront fees cut into your equity immediately. Don't use it if you hope to pass a debt free home to your children, or if yearly property taxes are already a burden. With income steady enough for monthly payments, weigh a standard home equity loan or a HECM vs HELOC. For a regular home equity loan, you typically need at least 20% equity in your house.
Dangers, pitfalls and scams with reverse mortgages
Some salespeople aren't honest and push older homeowners to borrow only so they can pocket part of the money. Don't do business with anyone who says you should use loan funds to purchase annuities, insurance or investments. Be careful of contractors who come to your door and pressure you to borrow for expensive work on your house. You'll get plenty of time from honest reverse mortgage companies to review the documents alongside your family.
How to protect yourself before you sign
A lender can't process your application until you've talked with an independent counselor, under federal rules. The fee counseling agencies charge is usually about $125, though it can run higher, and you're allowed to cover it with loan proceeds. Don't ever use your loan money to purchase a financial product that a salesperson recommends. You still have a legal right to back out of the deal after it closes. If you cancel within the allowed time, you owe nothing on the credit. The lender gets 20 days to give back any money you've paid toward the loan. For an impartial look at your own numbers, get in touch with HUD approved reverse mortgage counselors in your area.
Questions about your own home? Call (833) 962-5300. A reverse mortgage specialist answers; we are not a lender.