What are the pros and cons of a reverse mortgage?

What this means for you

The pros

• No required monthly mortgage payments. If you have a mortgage, it is paid off at closing. You still pay property taxes, insurance and upkeep.
• You keep title to your home. You can stay as long as you live there and meet the loan terms.
• Flexible payouts. Take a lump sum, monthly payments, a line of credit, or a mix. Monthly payments and the line of credit are available on adjustable-rate loans.
• A line of credit that grows. On an adjustable-rate HECM, the unused part of the line grows over time and can't be frozen or reduced by the lender while you meet the loan terms. How the line of credit grows
• Non-recourse protection. Neither you nor your heirs will owe more than the home is worth when it's sold. FHA insurance covers any shortfall.
• Generally not taxable income. Loan proceeds are not income, so they don't affect Social Security or Medicare. Benefits and taxes
• Can be used to buy a home. HECM for Purchase lets buyers 62+ combine a down payment with a reverse mortgage. How it works

The cons

• Upfront costs are higher than most home loans. They include a 2% upfront FHA mortgage insurance premium, an origination fee capped by HUD at $6,000, and normal closing costs, plus a 0.5% annual mortgage insurance premium. Most can be paid from the loan. Full cost breakdown
• The balance grows over time. Interest and mortgage insurance are added to the loan each month, so the amount owed rises while you're not making payments.
• Less equity for heirs. When the home is sold, the loan is repaid first. Heirs receive what's left.
• Ongoing obligations. Falling behind on property taxes, insurance or HOA dues, or letting the home fall into disrepair, can make the loan due. What protects you
• You must live in the home. Being away more than 12 months in a row for health reasons, such as a move to assisted living, can make the loan due.
• Means-tested benefits. Money kept past the month you receive it can count as an asset for Medicaid and SSI.
• Interest usually isn't deductible right away. Interest is generally deductible only when it's actually paid, which is often when the loan is paid off. Ask a tax professional.
• A younger spouse needs planning. A spouse under 62 can be protected as an eligible non-borrowing spouse, but only if they're named at closing and meet the requirements.

When does a reverse mortgage tend to make sense?

It tends to fit homeowners 62 and older who plan to stay in their home for many years, can keep up the home's ongoing costs, and want to remove a mortgage payment, add monthly cash flow, or hold a line of credit in reserve for health care, home repairs or market downturns. It's usually a weaker fit if you plan to move within a few years, if the home's ongoing costs are already a strain, or if leaving the home free and clear to heirs matters most to you. Selling and downsizing, a home equity loan or HELOC, or other assets may serve you better in those cases. You can estimate your numbers with a free calculator before talking to anyone.