I’ve been a CPA since 1981, so I’ve run the numbers for a lot of situations.
When readers ask me about reverse mortgages, the questions are almost never about the math. They’re about myths: “Won’t the bank end up with my house?” “Won’t my kids get stuck with the debt?”
Those myths matter, because a reverse mortgage involves real money on both sides.
Get the facts wrong in either direction and you could pass up an option that fits, or take on one that doesn’t.
Want to see what you’d qualify for first? Get the facts in about two minutes.
Myth 1: “The bank takes your house”
Fact: You keep the title. With the most common type of reverse mortgage, the Home Equity Conversion Mortgages, or HECM, you stay the owner of record.
The loan is secured by the home, just as a traditional mortgage is, but no lender takes ownership while you live there and meet the loan terms.
What changes is the direction of the money. With a regular mortgage, you pay the lender every month and your balance shrinks.
With a reverse mortgage, the lender pays you (as a lump sum, monthly payments, a line of credit or a mix), and the balance grows over time as interest and insurance are added.
Myth 2: “My heirs will be stuck with the debt”
Fact: HECMs are “non-recourse” loans. Neither you nor your heirs will ever owe more than the home is worth when the loan is repaid.
If the balance has grown past the home’s value, the federal mortgage insurance you paid for covers the gap, not your family.
When the last borrower dies or moves out, heirs have three basic choices: sell the home and keep any equity left after the loan is repaid; keep the home by paying off the loan (for no more than 95% of the home’s appraised value if the balance is higher); or hand the home over to satisfy the loan.
Heirs generally get 30 days to tell the servicer their plan and up to six months to complete it, with possible extensions.
The questions that matter most are about your house and your family. A free quote shows how much you could qualify for, and a licensed specialist then walks you through costs, repayment and what it means for your heirs. Get the facts in about two minutes.
Myth 3: “Once you have one, you don’t pay anything”
Fact: You still pay property taxes, homeowners insurance and upkeep. There’s no required monthly mortgage payment on a HECM, but you must keep paying property taxes, homeowners insurance and any HOA dues, and keep the home in good repair.
Fall behind on those and the loan can come due. Lenders review your income and credit up front to make sure you can carry those costs, and may set aside part of the loan to pay them.
The loan also comes due when the last borrower sells, dies or moves out for more than 12 consecutive months (for example, into assisted living).
Myth 4: “It’s free money”
Fact: A reverse mortgage has real costs, and they’re worth adding up. On a HECM, expect:
- Upfront mortgage insurance: 2% of the home’s value (up to the $1,249,125 limit). On a $400,000 home, that’s $8,000.
- Annual mortgage insurance: 0.5% of the loan balance each year, added to the balance.
- Origination fee: capped by HUD rules at the greater of $2,500 or 2% of the first $200,000 of home value plus 1% above that, with a $6,000 maximum.
- Interest and closing costs: appraisal, title and other fees similar to a regular mortgage. Interest accrues on the balance and compounds.
Most of these costs can be paid from the loan proceeds, which is convenient but means they reduce the equity left for you or your heirs.
As a CPA, my advice is the same as for any loan: ask for the total cost in writing, and compare it with the alternatives, such as a home equity line of credit, downsizing or simply selling.
You’ll get the cost breakdown in writing before you decide anything. See what you'd qualify for.
Myth 5: “You have to own your home free and clear”
Fact: You can have a mortgage, as long as you have enough equity. If you still owe money on your home, the reverse mortgage pays off that loan first, and you receive what’s left. For many retirees, simply eliminating a monthly mortgage payment is the main benefit.
The basic requirements: you must be 62 or older, live in the home as your primary residence and have significant equity.
Before closing a HECM, you’re also required to meet with an independent counselor approved by the U.S. Department of Housing and Urban Development (HUD), who explains the loan, its costs and the alternatives.
Counselors may charge a fee (which can sometimes be waived or paid from the loan), and the session is worth taking seriously.
The one “myth” that’s actually true
Some people say a reverse mortgage eats into your home equity. That one’s correct. Your balance grows every year, so the equity you’d otherwise leave to your heirs shrinks.
That’s the trade-off: you get to use your equity now, while you’re alive to benefit from it, rather than leaving it all in the walls.
Whether that trade makes sense depends on how long you plan to stay, what else you have to live on and what you want to leave behind.
The homeowners who use reverse mortgages well tend to share three habits: they plan to stay in the home for years, they keep a cushion for taxes and repairs, and they talk it through with their family before they sign.
Get the facts for your own home
It’s the most common reverse mortgage myth, and it stops a lot of people from looking at their best option. The truth: with a reverse mortgage, you keep the title and stay in your home.
The loan simply lets you spend the equity you’ve spent decades building — now, when you need it.
If you’re 62 or older and own your home, Longbridge Financial — a top-rated reverse mortgage lender — offers a free quote showing exactly what you’d qualify for.
A licensed specialist then explains what it costs, how repayment works, and what it means for your heirs. Straight answers, no obligation.
Get the facts in about two minutes.
What to expect: the quote form takes about two minutes, and a licensed specialist will follow up by phone, so leave a number you’ll actually answer.
Bottom line
Decide on myths and you could either walk away from tens of thousands of dollars of usable equity or sign up for costs you didn’t plan for. Decide on facts and it’s simply a question of whether the numbers fit your plans.
The right time to look is before you need the money, when you can compare a reverse mortgage calmly with a HELOC, downsizing or selling. Getting a quote costs nothing and doesn’t commit you to anything.
See your numbers before you decide. If you’re 62 or older and own your home, a free, no-obligation quote shows what you could qualify for, and a licensed specialist explains costs, repayment and your heirs’ options. Get the facts in about two minutes.
This article is for general information and isn’t tax, legal or financial advice. Reverse mortgage terms vary by lender and borrower. You must continue to pay property taxes, homeowners insurance and home maintenance, and the loan must be repaid when the last borrower sells the home, moves out permanently or dies.
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