Reverse Mortgage Pros and Cons

Pros of Reverse Mortgages

  • Provides flexible disbursement options (i.e. monthly or line of credit)
  • Homeowner stays in the home without making monthly mortgage payments*
  • Eliminate any existing mortgage
  • Heirs are not personally liable if payoff balance exceeds home value
  • Heirs inherit remaining home equity after paying off the reverse mortgage loan
  • Proceeds are tax-free**
  • Interest rates may be lower than other options

Cons of Reverse Mortgages

  • Value of estate inheritance may decrease over time as proceeds are spent
  • Fees are typically higher than with a traditional mortgage, such as the following:
    • Initial Federal Housing Administration (FHA) mortgage insurance premium
    • Ongoing FHA mortgage insurance premiums
    • Loan origination fee
  • Although a reverse mortgage loan generally does not affect eligibility for Social Security and Medicare, needs-based government programs such as Medicaid may be affected**
  • Reverse mortgages are not well understood by many people


*You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.

**Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.