The federally-insured Home Equity Conversion Mortgage (HECM) program allows homeowners aged 62 and older to tap into their home’s equity through a non-recourse loan.

Reverse mortgages aren’t for everyone, but for some people, there are many reasons why it’s a great financial tool to consider.

Top 10 reasons people choose to get a reverse mortgage:

Here Are the Top 10 Reasons to Take a Reverse Mortgage

1.  Budget breathing room/peace of mind

Older adults live on fixed incomes once they retire.  They also generally have fixed expenses, whether mortgage payments, monthly utility bills, or property-related expenses.  Sometimes, they may experience unexpected expenses like medical bills or a costly home improvement.

A reverse mortgage can free up your monthly budget by eliminating your mortgage payment and giving you extra breathing room.  With a reverse mortgage line of credit, you can gain peace of mind for future expenses such as new medication or replacing your water heater.

2.  Enhance lifestyle

Reverse mortgage proceeds don’t have to be used to pay for your necessities.  You can use the loan however you see fit—perhaps for dining out or vacationing.  Rather than limiting yourself to a shoestring budget, a reverse mortgage can help give you some flexibility to let you enjoy your golden years.

3.  Home improvement or modifications for aging-in-place

People take out a reverse mortgage because they want to remain in their homes for as long as possible.  Sometimes to do that, though, it’s necessary to make some adjustments.

You can use a reverse mortgage to help modify your home for aging in place.  That could include installing a ramp or placing grab bars in strategic locations such as bathrooms and hallways.

4.  Debt consolidation

One requirement of the HECM program is that it must take a “first lien” position on your home.  If you have an existing “forward” mortgage, part of your reverse mortgage proceeds will go toward paying it off.

You may also have other outstanding loans, such as a car or credit card debt.  With a reverse mortgage, you can consolidate your debt and pay off high-interest-rate loans, making the HECM your only outstanding loan.

5.  Purchase a new home

In addition to the standard HECM loan, a purchase program allows borrowers to buy a home and take out a reverse mortgage in one transaction.

This can help save time and money and can be something to look into if you’re interested in downsizing, transitioning to a single-level home, or moving closer to family or a climate of your choice.

6.  Fund gifts to heirs

As mentioned, reverse mortgage proceeds don’t have to be used to pay bills.  You can also use that money to give gifts to your loved ones or heirs, whether giving them enough money to make a down payment on a home or even helping a grandchild pay for college.

7.  Purchase a second home with no mortgage payment—including RVs

If you’re considering buying a second home or even an RV purchase but want to avoid getting a mortgage or a loan, taking out a reverse mortgage on your primary residence could help you accomplish your objective.

While HECM borrowers must maintain the home with the reverse mortgage as their primary residence, you can still have a vacation home or travel around in an RV if you are gone for less than six months each year.

8.  Utilize the credit line growth rate to hedge against inflation

If you don’t have an immediate need for your reverse mortgage proceeds, you may wish to access your loan through a line of credit.  Beyond the flexibility in drawing down your loan as needed, the line of credit option has another benefit: the unused portion grows at the interest rate of +.50%.

That means if your loan has a 6% interest rate, the unused portion of your line of credit will grow by 6.5%.  This feature also serves as a hedge against inflation.  If the interest rate increases, so does your available funds growth.  So, if interest rose to 8%, your remaining line of credit funds would grow by 8.5%.  (More about the credit line & growth feature)

9.  Fund long-term care

Sometimes older adults see their expenses mount rapidly as their health deteriorates.  In some cases, paying for an in-home caregiver can be more affordable than moving into a costlier nursing home or assisted living setting.

One way to pay for long-term care that you’re receiving in your home is through a reverse mortgage.

10.  Fund life insurance

You can use your reverse mortgage proceeds to fund a life insurance product to leave to your heirs.

A life insurance policy has an added benefit in that you’ll know the exact sum left to your estate.

Top FAQs

Q.

Why do people get a reverse mortgage, and what are the most common uses?

People get reverse mortgage loans for several reasons, but they all revolve around retirement planning.  Whether for additional funds for more significant expenses via a line of credit, supplementing retirement income with a monthly payment plan, or eliminating the existing mortgage payment that is too expensive to afford on a fixed income.
Q.

Why would someone take a reverse mortgage vs selling?

Homeowners take out reverse mortgages instead of selling their homes for several reasons.  In our experience, most people we speak to regarding this decision are already in the home they wish to live in.  Taking out a reverse mortgage can provide a homeowner with the necessary funds to remain in the home they are already comfortable in.  Selling one’s home comes with a fair amount of costs, including real estate commissions and moving costs.  It is usually only pursued when someone is looking to relocate to a new area to be closer to family or to downsize.
Q.

Why would someone borrow from a Reverse Mortgage vs a bank HELOC?

A homeowner would choose to borrow from a reverse mortgage instead of a bank HELOC depending on their current financial situation as well as their long and short-term goals.  A Reverse Mortgage loan requires no monthly payments.  HUD guarantees all proceeds on the Home Equity Conversion Mortgage (HECM), so a borrower is guaranteed access to their funds or monthly payment plan regardless of what happens to interest rates, home values, or even if their lender goes out of business.  On the other hand, a HELOC (Home Equity Line of Credit) comes with much more risk to the borrower and is often utilized by homeowners looking for access to borrow funds they intend to repay in a shorter time frame.  HELOC loans initially come with a mandatory interest-only payment but reset to a principal and interest payment after the draw period ends, creating a significant increase in the monthly payment.  Additionally, a HELOC can be frozen at a moment’s notice by the bank, cutting off access to the available funds when market conditions deteriorate, so you cannot rely on the fact that the funds will always be available to you down the road.
Q.

Why would someone do a reverse mortgage during inflationary times?

Obtaining a reverse mortgage during inflationary times will allow the homeowner to take advantage of a higher line of credit growth rate on the HECM program.  The unused funds in the line of credit grow based on the actual loan rate plus the MIP (Mortgage Insurance Premium) renewal rate of 0.50%.  The higher your interest rate is, the more growth you will see on your line of credit while the rate is higher.  If rates come down in the future, the line of credit growth rate will also come down, but so will the interest accruing on the balance.
Q.

Why would someone do a non-FHA-insured reverse mortgage?

A homeowner will pursue a non-FHA-insured reverse mortgage if their loan needs fall beyond what the HECM program can accomplish.  Some examples include larger home values and condominiums that do not meet HUD guidelines or the HOA is unwilling to obtain HUD approval.  As of January 2024, the HUD HECM limit is $1,149,825, which means any value above that amount is not considered for the maximum available loan amount.  Suppose you have a $3,000,000 home, for example, and have a larger mortgage to payoff.  In that case, you likely will not get enough funds from the FHA program and, therefore, would consider a proprietary or Jumbo reverse mortgage program.  Additionally, these programs have more lenient guidelines when it comes to condominiums than FHA does.  So condominium owners often consider these programs as well.