How Reverse Mortgages Have Become Safer: Essential Protections Explained

April 15, 2022

For years, reverse mortgages carried a stigma. High fees, the fear of losing your home, and tales of predatory lenders made many older homeowners wary. Yet, these loans have evolved significantly. Thanks to robust regulations, federal insurance, and greater transparency, reverse mortgages are now safer than ever, offering a secure way for retirees to tap into their home equity.

What’s changed? New safeguards protect borrowers from unfair practices, ensure clarity, and provide flexible financial options. Let’s dive into these essential protections and see why reverse mortgages might deserve a second look for your retirement.

Table of Contents

• Safeguard #1: Federal Guarantee

• Safeguard #2: Non-Recourse Feature

• Safeguard #3: Required Counseling

• Safeguard #4: Cross-Selling Ban

• Key Safeguards of Reverse Mortgages

• Are You a Candidate?

• Top FAQs

• Key Takeaways

Safeguard #1: Federal Guarantee

The Home Equity Conversion Mortgage (HECM)—the most common reverse mortgage—is insured by the Federal Housing Administration (FHA). Borrowers pay an upfront mortgage insurance premium (MIP), which varies by loan type, plus an annual MIP of 0.50% of the loan balance. In return, the FHA guarantees your loan proceeds remain accessible, even if your lender goes out of business. This federal backing adds a layer of security, ensuring your financial lifeline stays intact.

Safeguard #2: Non-Recourse Feature

Reverse mortgages are non-recourse loans, meaning you—and your heirs—are never liable for more than your home’s value at the time of sale, even if the loan balance grows larger. For example, if your home is worth $200,000 but the loan balance reaches $250,000, neither you nor your estate owes the difference. This protection eliminates the risk of debt passing to your family, offering peace of mind.

Safeguard #3: Required Counseling

Before applying for an HECM, borrowers must complete counseling with a HUD-approved third-party agency. This session ensures you fully understand the loan’s mechanics, costs, and implications for your situation. Counselors provide objective advice, answer your questions, and issue a certificate required to proceed. This step empowers you to make an informed decision without pressure from lenders.

Find a HUD-approved counselor here.

Safeguard #4: Cross-Selling Ban

Under the Housing and Economic Recovery Act of 2008, reverse mortgage lenders cannot force you to buy additional financial products (like annuities or insurance) as a condition of the loan. They’re also barred from associating with or selling such products themselves. While you’re free to use your proceeds however you choose, this rule shields you from predatory upsells, keeping the focus on your needs.

Key Safeguards of Reverse Mortgages

Safeguard	How It Protects You	Key Benefit
Federal Guarantee	FHA insurance ensures loan proceeds if lender fails	Financial stability
Non-Recourse Feature	Limits repayment to home’s value at sale	No debt burden for you or heirs
Required Counseling	Third-party education on loan terms	Informed, pressure-free decisions
Cross-Selling Ban	Prevents forced purchase of other products	Protection from predatory tactics

Are You a Candidate?

Reverse mortgages aren’t for everyone. Designed to help you age in place, they may not suit you if you plan to move soon due to health issues or intend to travel extensively (you must live in the home as your primary residence most of the year). However, if staying in your home aligns with your retirement goals, the HECM’s built-in protections make it a safe, viable option.

Curious About Your Options? Discover how much you can access with a custom reverse mortgage quote from All Reverse Mortgage—America’s #1 with a 4.99/5-star rating! Call (800) 565-1722 or click here for your free quote —simple, trusted, 100% secure!

Top FAQs

Is a reverse mortgage legitimate?

Reverse Mortgage loans are legitimate loan products. The Home Equity Conversion Mortgage (HECM) is insured by the federal government (FHA, a division of HUD) to ensure older homeowners can access home equity. The HECM program has been government-insured since 1988, so the reverse mortgage has been a legitimate and viable product for over 3 decades. Prior versions of reverse mortgages existed before 1988, which were not advantageous for homeowners.

What is the catch with a reverse mortgage?

There is no catch with a reverse mortgage. You are not required to pay on the loan until you leave home, so the balance rises instead of falling each month as it would if you were making payments. All borrowers should take the time to educate themselves thoroughly before obtaining a reverse mortgage.

Can you lose your house with a reverse mortgage?

You can lose your home with a reverse mortgage like any other loan. You must live on the property, pay the taxes and insurance on time, and maintain the home in a reasonable manner. Failure to do so would cause the lender to call the loan due and payable, and if you could not repay the loan after default, the lender could start a foreclosure.

Does a reverse mortgage have to be paid back?

The reverse mortgage is a loan program, not a government grant. The loan must be repaid when you no longer live or sell the home.

Are Reverse Mortgages Safe?

Reverse mortgages are a safe financial instrument if you understand your requirements under the loan and can meet them. You must occupy the property, pay your taxes and insurance, and maintain the home.

Key Takeaways

Reverse mortgages have shed their risky reputation. Federal oversight, non-recourse terms, mandatory counseling, and anti-predatory rules ensure borrowers are protected and informed. These changes make reverse mortgages a reliable tool for unlocking home equity—safely and securely.

ARLO recommends these helpful resources:

America's #1 Rated Reverse Lender Celebrating 20 Years of Excellence.

Have a Question About Reverse Mortgages?

Look no further. Michael G. Branson, our CEO, brings a wealth of knowledge directly to you. With a robust 45-year tenure in mortgage banking and 20 years dedicated solely to reverse mortgages, he's the expert you want on your side.

Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

6 Comments on this Article

Eve S.
December 22nd, 2022

Hi Arlo,

My Reverse Mortgage LLC recently filed for Chapter 11. Is this going to cause problems for me?
Reply to Eve
- Michael Branson
  December 22nd, 2022
  
  Hello Eve,
  
  Your loan is backed by HUD, and you still have your Mortgage Insurance on which you can rely. The loan is an asset your lender can still sell, and it will either be sold to a new lender/servicer as part of the Bankruptcy settlement or will be assigned to HUD. Either way, you should see no discernable disruption in your loan or the servicing of the loan.
  I wish I could tell you that you will not even know that it happened but while there is always the possibility of a hiccup during the transition, there should be no cause for concern of any long-term issues. Chances are that the plans are already completed and in place for the orderly transition from one servicer to another (and it's entirely possible that your new lender uses the same servicing company which would make the move all but seamless).
  Reply to Michael
Brenda K.
April 4th, 2022

What happens if one takes out a reverse mortgage or a safety nut, but never uses it? What kind of fees would a crew after a couple years?
Reply to Brenda
- Michael Branson
  April 15th, 2022
  
  Hello Brenda,
  
  Assuming you never borrow any more than the costs to establish the loan, the interest that accrues on that little amount in just a few years would be very minimal. When you apply, the lender will give you some key documents to review and one will be an amortization schedule. That schedule will allow you to see what the outstanding balance would be year by year based on the amount you borrowed at closing.
  Unfortunately, most lender's software will not allow you to factor in multiple draws and changing interest rates though so the initial amortization will only show whatever initial draw you choose and usually at the expected rate which is actually higher than the interest you will be accruing in the beginning. No one can tell you for certain what future rates will do.
  After 45 years in mortgage banking, the only thing I can tell you for certain is that they will go up, go down, stay relatively the same or some of any or all of these options but I cannot tell you for sure which. I could have retired a wealthy man long ago if I always knew what rates would do in advance but I don't and neither does anyone else.
  
  We have a custom calculator available that allows borrowers to insert their own parameters though so you can take the information on your HECM documents and insert them into an excel friendly sheet and see what you would owe if rates rise, decline, if you borrow more money or if you want to pay the balance down at any point.
  If you are considering a HECM loan but want to see how it would look in the future at various times, I would encourage you to visit our reverse mortgage calculator and then ask your loan officer to send you the loan calculator loaded with your specific information so you can run your own scenarios after that with different rates, draws and payments if you so choose.
  Reply to Michael
Nikita
October 17th, 2021

Hi ARLO,

Can a non-US citizens do RM? what are some banks that I can trust to do it? I read there are 3 ways to do RM-(1), get a sum of cash all at once. (2), get monthly payment. (3) combine both. I would like to do (1) and I'll live in my house till I die and give my house to the bank. If I sell the house/not live there anymore, of course I should pay back the amount of cash I got from the bank.
Reply to Nikita
- Michael Branson
  October 27th, 2021
  
  Hello Nikita,
  Borrowers for the HUD HECM program must be a U.S. Citizen or a lawful resident alien. Permanent resident aliens must be able to supply a copy of their unexpired resident alien card.
  A non-permanent resident alien must also occupy the property as their primary residence, must possess a social security card and if working must be eligible to work in the U.S. as demonstrated by providing an Employment Authorization Document (EAD) issued by the U.S. Citizenship and Immigration services.
  Reply to Michael

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