For many retirees, the largest asset they own is the home they live in — wealth they can't easily spend without selling. A reverse mortgage is one way to tap it. It can be a lifeline or a costly mistake, and the difference is in understanding exactly how it works.

What a reverse mortgage is

A reverse mortgage is a loan available to older homeowners — in the U.S., generally age 62 or older — that lets them borrow against their home equity and receive the money as cash, while continuing to live in the house, as the CFPB explains. The most common type is the government-insured Home Equity Conversion Mortgage (HECM).

The "reverse" is the key idea. With a normal mortgage, you make monthly payments and your loan balance shrinks over time. With a reverse mortgage, you make no required monthly payments, and the balance grows — as you draw money and as interest and fees are added to what you owe. You can typically take the funds as a lump sum, a line of credit, or regular monthly payments.

When the loan comes due

You don't repay a reverse mortgage on a schedule; it comes due all at once when a trigger event happens — usually when the last borrower sells the home, moves out permanently (including into long-term care), or dies, as the FTC describes. At that point the loan — original draws plus all the accumulated interest and fees — must be repaid, typically by selling the house.

An important protection: HECMs are "non-recourse" loans, meaning that if the balance ends up larger than the home's value, neither you nor your heirs owe more than the home is worth. But whatever equity is consumed by the loan is gone — which is the central trade-off.

The risks to weigh first

Reverse mortgages are heavily marketed and easy to misunderstand. The main cautions:

  • The costs are high. Upfront fees, mortgage insurance and closing costs can be substantial, and interest compounds on a rising balance — making it an expensive way to borrow.
  • You can still lose the home. Missing this is the classic trap: you remain responsible for property taxes, homeowners insurance and upkeep. Fall behind on those and the loan can be called — and you can face foreclosure even with a reverse mortgage.
  • It erodes your heirs' inheritance. The growing balance eats into the equity that would otherwise pass to family. Heirs who want to keep the home must repay the loan.
  • It can affect benefits and options. A lump sum can complicate needs-based benefits, and moving out (say, into care) triggers repayment sooner than some expect.

The alternatives

A reverse mortgage isn't the only way to use home equity, and often not the cheapest. Others weigh downsizing (selling and buying something smaller to free up cash), a home-equity loan or line of credit (cheaper, but with required monthly payments), or simply other savings. Newer products like home-equity investment agreements — where a company gives you cash today for a share of your home's future value — are also marketed to retirees, and carry their own complex terms worth scrutinizing.

Why it matters

For retirees, a reverse mortgage can genuinely help someone who is "house-rich but cash-poor" stay in their home and cover expenses — but it is a serious, expensive, hard-to-reverse decision that trades future equity for present cash. Independent counseling is required for HECMs for exactly this reason. Boursel gives no individual financial advice; the essential point is to go in clear-eyed: understand that the balance grows, that you must keep paying taxes and insurance, and that the equity you spend won't be there later — then compare it honestly against the simpler alternatives before signing anything.