You can better manage retirement expenses
Many seniors see their income drop when they retire. A reverse mortgage can help you supplement that reduced income without having to dip into savings. You also generally don’t have to make monthly payments, which can help you free up budget space.
You can stay in your home
Instead of moving, a reverse mortgage can allow you to “age in place.” While reverse mortgages do come with fees and other costs, they may still be less expensive over time than buying another home or renting in a different location.
You typically don’t pay income taxes on the money received
The funds you receive from a reverse mortgage are generally not treated as taxable income. The IRS considers them “loan proceeds,” not income.
However, other programs (like certain benefits) may treat the payment differently—this is worth checking for your specific situation.
Your debt can’t exceed your home’s value
Reverse mortgage balances grow over time, so it’s possible the amount you owe could eventually be more than your home’s current value. Reverse mortgages are “non-recourse,” meaning the debt that must be repaid is limited to the home’s value.
This also generally means the lender can’t pursue your other assets (or your heirs’ assets) to cover any shortfall.
Your heirs have several options
You (the borrower) can repay the reverse mortgage at any time. But repayment usually happens later—when you move out, sell the home, or pass away. When it becomes an estate issue, heirs often have options, such as:
- Sell the home to repay the loan and keep any remaining equity
- Repay the debt out of pocket
- Keep the home and refinance the reverse mortgage balance if the home’s value supports it
- Let the lender take over the title if the debt exceeds the home’s value (or if heirs don’t want to keep the property)
That last option is important: in many cases, the lender may be able to file a claim with the insurer—often the Federal Housing Administration (FHA), which oversees Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage.