5 Common Reverse Mortgage Myths, Debunked

Many Americans are retiring with less cash than they would like. But in some instances, that can be offset by unexpectedly large — yet welcome — boosts in their home values. Financial planners frequently recommend reverse mortgages to help qualified older folks supplement their income in retirement. But misconceptions are commonplace.

“It's not a tool for everything,” says Zachary Barton, certified financial planner and founder of Barton Financial Group. “If you use it appropriately, it's a great tool.”

Industry experts and knowledgeable homeowners often concur. In a 2024 Opinium survey, 62% of older homeowners agreed that reverse mortgages offer more financial freedom in retirement, provided that they knew how they worked.

Here are some of the misconceptions about reverse mortgages, including how they arose and how you can separate fact from fiction.

Myth #1: Reverse mortgages are shady

Over the years, financial regulators have introduced many consumer protections when it comes to reverse mortgages, particularly for Home Equity Conversion Mortgages (HECMs), which are the most common kind.

For example, there is now a pathway for spouses to stay in the home if they are not listed on the loan, and lenders must take extra steps upfront to limit borrowers from running into trouble down the road.

Today’s reverse mortgages are a far cry from the late-night infomercials of the ‘90s, but that reputation has not been easily shaken. “Everyone seems to have a general uneasiness,” Barton says. “I don't feel like the product was bad. They were just missold.”

When he thinks a reverse mortgage might be a good fit for a client, he often introduces the idea over the course of a few meetings. That gives clients time to process their feelings after seeing the numbers about how it might boost their own retirement plan and ultimately come to a decision that they are comfortable with.

Myth #2: Reverse mortgages are a last resort

If reverse mortgages cannot be trusted, according to common sentiment, then the only people who use them must be out of options. However, these secured loans can provide much-needed cash flow for people who do not have other assets to draw on in retirement. But generally, it is better to use reverse mortgages as a way to diversify overall retirement portfolios, similar to how you would diversify your investment portfolio.

In fact, when set up properly, they can be a boon to retirees who have perfectly adequate savings. It is possible to set up a reverse mortgage to provide steady monthly payments that cover fixed expenses like your property taxes and insurance for as long as you live, offering an extra layer of security you otherwise would not get with invested savings.

You can also set up a reverse mortgage as a revolving line of credit that you can draw on as needed — for instance, when a market downturn results in investment losses. Doing so can reduce the likelihood of having to sell stocks in your portfolio when it is down, according to Barton. “And when you do that,” he says, “you can actually reduce how much you need to have in retirement.”

But the biggest testament comes from a 2016 study by the Financial Planning Association that looked at how different retirement portfolio options would play out over time. The simulation showed that homeowners taking out a reverse mortgage line of credit at the start of their retirement doubled their odds of success (i.e., not running out of money) over the course of a 30-year retirement.

Without a reverse mortgage, the model portfolio stood a 40% chance of having enough cash over a three-decade retirement. However, with a reverse mortgage, those odds bumped up to 80%.

Myth #3: Reverse mortgages are expensive

This is an issue Barton says he comes across often, adding the caveat that “expensive” is relative. Reverse mortgages do have upfront costs, not unlike mortgaging a property. That can add up to several thousand dollars, but with a reverse mortgage, you can roll those costs into your loan amount.

But unlike a traditional mortgage, borrowers are not required to make recurring payments. That is the main reason many borrowers choose a reverse mortgage, after all. Instead, the loan balance ticks upward in the background, with interest and fees being added each month.

The balance isn’t settled until after you are out of your home, but you — or your estate — generally will never owe more than your home is actually worth, no matter how large your balance grows.

Myth #4: Your heirs won't inherit your home

Another common misconception about reverse mortgages is that your heirs won’t be able to inherit your home after you are gone. But there is nothing in reverse mortgage loan documents that excludes heirs — and in fact, they may even get certain benefits in keeping the home.

When the time comes, your heirs get to decide what to do with your home: sell it, turn it over to the lender or pay off the reverse mortgage to keep it, usually by getting a new mortgage of their own. If the reverse mortgage balance grows larger than your home is actually worth — as is possible — then your heirs only have to repay 95% of its value to sell or keep it. In other words, they might get a 5% discount on your home.

Importantly, heirs are not required to sell the home to satisfy the loan balance. They have the option of repayment with cash or by taking a new mortgage.

“I do think people worry about that too much. Most of the time, people's adult children don't want to move into a house that their 85-year-old parents were living in. They're gonna sell it,” Barton says. “So then, what's the difference between selling a house that has a reverse mortgage on it, versus a traditional mortgage that's just not paid off?”

Myth #5: You won't own your home anymore

Another common myth is that reverse mortgage borrowers no longer own their home. As is the case with a normal mortgage, you are the legal owner of the home, title and all. But when you have a mortgage — forward or reverse — your lender also has a lien on your home. That allows them to foreclose on your home if you do not meet the terms of your contract. With a reverse mortgage, that includes:

• Living in your home full-time: Many reverse mortgages end when borrowers move into full-time adult care or pass on. By then, you no longer need the home anyway.

• Staying current with home repairs: You have to keep your home in a safe, orderly and livable condition. Make sure you can pay for regular maintenance and upkeep.

• Keeping up with property taxes and insurance: You need to keep up with societal obligations and keep your home protected from disasters, too.

“If you have a reverse mortgage … it should decrease the chance that you can't pay your taxes,” Barton says. In that regard, a reverse mortgage can actually help you stay in your home for a longer, not shorter, amount of time.

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