HECM & Reverse Mortgage: Myths & Facts
For many older homeowners, the idea of a reverse mortgage comes with a mix of curiosity and concern. Maybe you’ve heard that you’ll lose ownership of your home, or that your heirs will be left with no equity or ability to sell the home. These are common concerns, but the truth is often very different from the myths floating around.
Types of Reverse Mortgages
To begin with, there are primarily two types of reverse mortgage options that are available to help older homeowners utilize their home equity to supplement or extend retirement income or purchase a new home. The choice depends on individual needs, home value, and financial goals.
Both Home Equity Conversion Mortgages (HECMs) (Minimum Age 62) and Proprietary Reverse Mortgages (Minimum Age 55*) offer flexible payout options (lump sum, monthly payments, or a line of credit). Unlike traditional mortgages, borrowers are not required to make monthly mortgage payments. Interest and fees are added to the loan balance each month. The loan is repaid when the borrower no longer lives in the home. Additionally, property taxes, insurance costs, and any HOA dues will still need to be paid as long as you’re maintaining the home.
A Reverse Mortgage can be a valuable financial tool, giving you the freedom to access your home equity while staying in your house. But to make the right choice, you need facts, not fear. Let’s clear up the biggest reverse mortgage myths so you can make an informed decision.
If you're considering a Reverse Mortgage, check out Rate’s reverse mortgage options to explore how it could work for you.
What Are the Facts on Reverse Mortgages?
Many older homeowners hesitate to explore reverse mortgage financing because of misinformation.
Misunderstandings about home ownership, repayment, and how the loan works often prevent people from taking advantage of this financial tool.
At Rate Reverse we believe in guiding borrowers and their families, so they are in a great position to make an informed decision. It is important to separate fact from myth and understand what a reverse mortgage really offers.
You Still Own Your Home with a Reverse Mortgage
One of the most common reverse mortgage myths is that the lender takes ownership of the home once the loan is issued. That’s completely false.
The truth is that the homeowner keeps the title to the property, just like they would with a traditional mortgage or a home equity loan.
The key difference is that instead of making a monthly mortgage payment, with a reverse mortgage monthly mortgage payments are not required**. The loan allows the borrower to receive reverse mortgage proceeds while continuing to live in their primary residence.
Because borrowers typically choose to not make a monthly mortgage payment, the loan balance increases over time, but the last borrower or their heirs still have options. Like traditional mortgages, they can choose to repay the reverse mortgage balance and keep the house, sell it and keep any remaining proceeds, or allow the lender to sell the property to satisfy the loan.
Reverse Mortgages Have Flexible Payout Options
A HECM reverse mortgage provides older homeowners with several ways to access their home equity. Unlike a standard mortgage, which requires a homeowner to make fixed monthly payments, a reverse mortgage is more flexible.
Borrowers can receive their reverse mortgage proceeds in one of three ways:
- A lump sum payment
- Monthly payments for as long as they live in the home
- A line of credit that grows over time and can be accessed as needed***
- Combination of the three
Many borrowers use this financial product to supplement their retirement income, cover property taxes, make home repairs and modifications or handle unexpected out-of-pocket expenses like in home care.
Additionally, more older home owners are using a reverse mortgage to purchase a new home or use it as an asset management strategy to provide an alternative source of monthly cash flow, helping to potentially preserve their investment portfolio and savings.
Depending on their financial plan, they may also consult with a financial advisor to determine which option makes the most sense for their needs.
You Won’t Owe More Than Your Home’s Value
A common belief is that a reverse mortgage balance can grow larger than the home’s value, leaving heirs with unmanageable debt. This is simply not true.
Reverse mortgages are non-recourse loans, meaning the borrower (or their heirs) will never owe more than the appraised value of the home when it’s sold.
Even if the home value decreases due to market conditions, neither the borrower nor their estate will be responsible for paying beyond what the property is worth.
For the HECM product, the Federal Housing Administration (FHA) provides insurance that covers the difference if the loan balance exceeds the home’s value, ensuring that any remaining proceeds from the sale price go back to the estate. And, Proprietary Reverse mortgage products for higher home values also are non-recouse loans.
Reverse Mortgages Are Federally Insured
A HECM reverse mortgage isn’t just any financial product, it’s backed by Federal Insurance through the FHA and HUD (Department of Housing and Urban Development).
This means:
- The government regulates the program to protect seniors from unfair loan practices.
- Mortgage insurance premiums ensure that lenders follow strict guidelines.
- Borrowers receive financial security with transparent loan terms and protections against market fluctuations.
With these safeguards in place, a HECM remains the most common type of reverse mortgage, offering a structured and secure option for older homeowners looking to access their home equity.
Reverse Mortgages Can Be Used to Buy a Home
A common misconception is that a reverse mortgage is only useful for accessing equity in an existing mortgage. But in recent years, more older homeowners have used a HECM to purchase a new home.
This can be a great option for those looking to downsize, move into a more accessible house, or relocate to a different state without taking on a new mortgage payment.
Instead of selling an existing home and taking out a standard mortgage on a new one, borrowers can use a reverse mortgage to finance the purchase, eliminating the need for monthly mortgage payments while still maintaining ownership of the home.
For many, this financial tool offers flexibility to live in a property that better fits their needs during their retirement years, without the burden of traditional loan payments.
Reverse Mortgage Myths
Despite the benefits, misinformation continues to circulate. Let’s clear up some of the biggest reverse mortgage myths.
Myth: You Don’t Own Your Home with a Reverse Mortgage
Truth: You still own your home; the lender does not take ownership of the home.
A reverse mortgage loan functions similarly to a traditional mortgage or a home equity loan, where the homeowner holds the title while the lender places a lien on the property.
This lien secures the loan balance and ensures repayment when the last borrower permanently moves out or passes away.
The only requirement is that you continue meeting the loan terms, which include staying current on property taxes, home insurance, and keeping the home in good condition. As long as you meet these conditions, you maintain full ownership and control of your home.
Myth: The Lender Will Take Your Home and Your Heirs Won’t Get It
Fact: Your heirs still have control over what happens to the home.
When the reverse mortgage balance becomes due, typically when the last borrower leaves the property, your heirs have several options:
- Keep the home by paying off the reverse mortgage balance
- Sell the home and use the sale price to repay the loan, keeping any remaining proceeds
- Allow the lender to sell the property if they don’t wish to retain ownership
Because a reverse mortgage is a non-recourse loan, your heirs will never owe more than the home’s appraised value, even if the loan balance is higher.
Any remaining debt beyond the home’s value is covered by the FHA insurance program, ensuring no out-of-pocket costs for your estate.
Myth: A Reverse Mortgage Prevents You From Selling Your Home
Fact: A reverse mortgage does not limit your ability to sell your home.
You can sell your house at any time, just like with a traditional mortgage or home equity loan. The only requirement is that the loan balance must be repaid at closing.
If your home’s value has increased, you’ll keep any remaining funds after settling the reverse mortgage loan. If the market value is lower than expected, the FHA insurance guarantees that neither you nor your heirs will have to pay the difference.
Myth: Your Spouse Will Be Kicked Out if You Pass Away
Truth: If your spouse is a co-borrower, they can remain in the home without having to make a mortgage payment, even if you pass away first.
For non-borrowing spouses, protections exist under HUD regulations that allow them to stay in the primary residence, provided they continue meeting loan terms, including paying property taxes, insurance, and maintaining the property in good condition.
These safeguards ensure that a reverse mortgage doesn’t leave surviving spouses without a place to live.
Myth: Your Social Security and Medicare Will Be Impacted
Fact: A reverse mortgage loan does not affect Social Security benefits or Medicare since these programs are not need-based.
However, Supplemental Security Income (SSI) and other need-based programs may be impacted if you receive reverse mortgage proceeds and do not spend them immediately. Unused funds may count as an asset, potentially affecting eligibility.
If you rely on need-based programs, it’s a good idea to speak with a qualified financial advisor to structure your reverse mortgage in a way that preserves these benefits. You can also visit www.ssa.gov for additional information.
Myth: Reverse Mortgages Cannot Be Used to Purchase a Home
Truth: A reverse mortgage can help you buy a new home, making it a valuable financial tool for older homeowners looking to relocate.
Through a Reverse for Purchase, borrowers can use reverse mortgage proceeds combined with a down payment to buy a home without taking on new monthly mortgage payments.
This can be an excellent option for those looking to move into a more manageable property while keeping more of their cash flow available for retirement costs, home repairs, or other financial obligations.
By using a Reverse for Purchase, you get the benefit of homeownership without the burden of a standard mortgage, helping you maintain financial independence.
How a Reverse Mortgage Can Support Your Financial Goals
A reverse mortgage offers multiple ways to improve cash flow and manage retirement costs while staying in your home.
Supplement Retirement Income and Preserve Savings
A reverse mortgage provides additional income without requiring monthly mortgage payments, allowing older homeowners to preserve their savings for other essential costs.
Instead of withdrawing from retirement accounts too quickly, homeowners can use their home equity to maintain financial stability and cover daily expenses while keeping their savings intact.
Fund Important Home Improvements
Many older homeowners use their reverse mortgage proceeds to finance essential home repairs or modifications that improve accessibility and maintain their home’s condition.
This can include installing ramps, upgrading bathrooms, or repairing roofing and plumbing. Using a reverse mortgage to cover these costs helps homeowners stay in their house longer without dipping into savings.
Leverage Your Equity Strategically With a Line of Credit
A HECM reverse mortgage offers a line of credit, giving borrowers access to money when needed. Unlike a home equity loan, the unused funds in this line of credit can grow over time, increasing available equity.
This feature provides financial flexibility, allowing homeowners to manage cash flow and unexpected expenses without taking on additional debt.
How to Get a Reverse Mortgage?
A reverse mortgage can be a smart way for older homeowners to use their home equity without taking on a monthly mortgage payment, but there’s a lot of misconception out there.
The truth is, a reverse mortgage gives you options, whether it’s boosting retirement income, handling property taxes, or setting up a line of credit for unexpected expenses. The key is making an informed decision based on facts, not common myths.
If you're curious about how reverse mortgage financing could work for your financial plan, Rate has the information you need. Get a clear breakdown of your options here: Reverse Mortgage at Rate
*Minimum age for Proprietary may vary by state. See guidelines for more information.
**Homeowners must continue paying property charges, including property taxes, hazard insurance, HOA dues (as applicable) and maintaining the home.
***If part of your loan is held in a line of credit upon which you may draw, then the unused portion of the line of credit will grow in size over time. The growth rate is equal to the sum of the interest rate plus the annual mortgage insurance premium rate being charged on your loan.
This is not a commitment to lend. Reverse mortgages are eligible for borrowers 62 and older. Age limits for additional brokered loan options may start at 55. The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid. Otherwise, the loan must be repaid when the last borrower passes away or sells the home. Prices, guidelines and minimum requirements are subject to change without notice. Some products may not be available in all states. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision. This material has not been reviewed, approved or issued by HUD, FHA or any government agency. Rate, Inc. is not affiliated with or acting on behalf of or at the direction of HUD, FHA or any other government agency. To find a Reverse Mortgage counselor near you, search the HECM Counselor Roster at https://entp.hud.gov/idapp/html/hecm_agency_look.cfm or call (800) 569-4287.
Charges such as an origination fee, mortgage insurance premiums, closing costs and/or servicing fees may be assessed and will be added to the loan balance. The loan balance grows over time, and interest is added to that balance. Interest on a reverse mortgage is not deductible from your income tax until you repay all or part of the interest on the loan. Although the loan is non-recourse, at the maturity of the loan, the lender will have a claim against your property and you or your heirs may need to sell the property in order to repay the loan or use other assets to repay the loan in order to retain the property. You should know that a reverse mortgage is a negative amortization loan which means that your mortgage balance will increase while your home equity decreases if you do not make principle and interest payments on your loan. This may make it more difficult to refinance the loan or to obtain cash upon the sale of the home. However, you will never owe more than the home is worth when the loan is repaid.