When Is a Reverse Mortgage a Bad Idea?

Let's get something out of the way:

I do reverse mortgages. And I don't think everyone over 62 with home equity should get one.

A reverse mortgage is a financial tool.

Like most financial tools, it can be incredibly useful in the right situation and completely unnecessary—or downright inappropriate—in another one.

So instead of asking:

“Are reverse mortgages good or bad?”

I'd rather ask:

“What are we trying to accomplish, and is a reverse mortgage actually the best tool for the job?”

Here are some situations where I'd want to look very carefully before recommending one.

1. You're probably moving soon

Reverse mortgages have upfront costs.

That means time matters.

If you're planning to sell your home next year, move closer to your kids, downsize, or transition into another living arrangement soon, paying the costs to establish a reverse mortgage may not make economic sense.

HECMs are designed around the home being your principal residence, and the loan generally becomes due when the last applicable borrower or eligible non-borrowing spouse sells or no longer occupies the property as a principal residence.

That doesn't automatically make a short holding period wrong.

It does mean we should run the numbers before doing anything.

2. You can't comfortably handle taxes, insurance and upkeep

This one is critical.

A reverse mortgage generally removes the requirement to make monthly principal and interest mortgage payments.

It does not remove the costs of owning a house.

You remain responsible for applicable property taxes, homeowners insurance and keeping the home in good condition. Failure to meet those requirements can eventually put the loan into default.

If maintaining the house itself has become financially unsustainable, accessing equity may buy time without fixing the underlying problem.

Sometimes the better conversation isn't:

“How do we keep this house?”

It's:

“Is keeping this house still the best financial decision?”

Those are very different questions.

3. You don't actually need to access your equity

Having a lot of equity doesn't mean you need to borrow against it.

If your income comfortably covers your lifestyle, your emergency reserves are strong, your investment plan is working, and there isn't a specific problem we're trying to solve, I don't believe in manufacturing a reason to borrow money.

“Because you can” is not a financial strategy.

There should be a job for the loan.

4. Preserving as much home equity as possible is your highest priority

A reverse mortgage balance generally grows because interest and applicable charges are added over time.

That means there may be less home equity remaining later than there would have been without the loan.

If your overriding objective is:

“I want my children to inherit this house with as little debt against it as possible,”

that's a major consideration.

That doesn't necessarily make a reverse mortgage impossible.

But it means we need to understand the tradeoff we're making.

Interestingly, there are also situations where using housing wealth strategically could help preserve other assets.

That's why I don't think “legacy” can be analyzed by looking at the house alone.

The whole balance sheet matters.

5. Another solution clearly does the job better

Maybe you need access to $25,000 for a short-term expense and have plenty of income to support payments.

Maybe selling and downsizing solves the real problem.

Maybe traditional financing is cheaper for what you're trying to accomplish.

Maybe you don't need to borrow at all.

The objective isn't to find a way to make a reverse mortgage fit.

The objective is to compare the available strategies and choose the one that makes the most sense.

6. You don't understand what you're signing

This might be the biggest one.

If someone can't clearly explain to you:

How the balance grows,

What the loan costs,

What happens when you move,

What happens when you die,

What you're responsible for,

What your spouse's position is,

And what your heirs' options are,

don't sign it yet.

HECM borrowers are required to complete counseling with a HUD-approved housing counselor as part of the process. HUD maintains the counseling system specifically so borrowers receive independent education about the program.

You should understand the strategy before you commit to it.

7. Someone is pressuring you into it

This one isn't complicated.

If a lender, salesperson, contractor, family member—or anyone else—is pushing you to borrow against your house before you're comfortable with the decision:

Stop.

Your home may be one of the largest assets you own.

You have every right to understand exactly what you're doing with it.

What makes a reverse mortgage worth considering?

Usually, there's a specific objective.

Maybe eliminating an existing required mortgage payment materially improves retirement cash flow.

Maybe you want another source of available liquidity.

Maybe accessing housing wealth prevents you from having to sell investments at an inconvenient time.

Maybe you're purchasing a home and want to preserve more liquid assets.

Maybe you're trying to make your retirement income plan more flexible.

Those are strategy questions.

And that's where reverse mortgages get much more interesting than:

“You're 62 and have equity. Want some cash?”

The test I like to use

Before recommending any mortgage strategy, I want to be able to finish this sentence:

“We're doing this because ______.”

If we can't fill in that blank with something concrete, we probably don't have enough reason to do the loan.

Then we ask:

What are the alternatives?

What does each one cost?

What risks does each one create?

What flexibility does each one preserve?

Now we're making a financial decision instead of buying a product.

Frequently Asked Questions

Is a reverse mortgage always a bad idea if I want to leave my house to my children?
No. But because the loan balance can grow over time, the effect on home equity and your broader estate plan should be considered.

Is a reverse mortgage bad if I plan to move?
Not automatically, but a short expected time in the home can materially affect whether the costs and benefits make sense.

What if I can't afford my property taxes?
That's an important issue to address before proceeding. HECM borrowers must meet applicable property-charge requirements, and the lender performs a financial assessment during qualification.

Not Sure Which Side You're On?

That's exactly what the Home Equity Assessment is for.

It isn't designed to tell everyone they need a reverse mortgage.

It's designed to help identify what you're actually trying to solve and whether using home equity deserves a closer look.

Take the Home Equity Assessment →

This article discusses FHA-insured HECMs generally and is educational, not individualized financial, tax or legal advice. Eligibility and suitability depend on individual circumstances.