Reverse Mortgages: Smart Move or Financial Trap?

Merlin Rothfeld on May 30, 2025

You’ve probably seen the ads—smiling seniors, big promises, and the pitch that you can get cash from your home without ever moving out. Sounds pretty good, right? But if you’ve been around the financial world long enough, you know the devils in the details. That’s where reverse mortgages live.

So, let’s cut through the fluff and get real about how these products work, who they’re for, and whether or not they actually make sense in today’s market. Spoiler: for some people, they do. For others? Big mistake.

 

What the Heck Is a Reverse Mortgage?

In plain English: a reverse mortgage lets homeowners 62 and older turn their home equity into cash—without having to sell or move out. You can take the money as a lump sum, monthly payments, a line of credit, or some combo of those.

The most common version is called a HECM—Home Equity Conversion Mortgage. It’s backed by the government (specifically the Federal Housing Administration  or FHA), so it comes with a few guardrails to protect you. There are also jumbo versions for high-value homes, but those are private, not FHA-insured.

Here’s the kicker: you don’t make monthly mortgage payments, but you do have to keep up with property taxes, insurance, and maintenance. Skip those, and you could still lose the house. Not exactly the “free money” the TV ads make it sound like.

 

When Do You Have to Pay It Back?

A reverse mortgage doesn’t come due until a “maturity event”—basically one of these:

  • You move out or sell the home
  • You pass away
  • You stop paying property taxes or insurance
  • The home falls into disrepair

At that point, either you, your spouse, or your heirs must pay the loan back. But here’s one solid protection: you or your estate never owe more than the home is worth. If the market tanks, FHA insurance covers the difference.

 

Is This Regulated? Or Is It Wild West Stuff?

Good news, it’s regulated. Most reverse mortgages today are FHA-insured and HUD-supervised. That means mandatory financial counseling, a formal application process, and qualification rules.

To qualify in 2025, you need to:

  • Be at least 62
  • Live in the home as your primary residence
  • Have substantial equity (usually 50%+)
  • Complete a HUD-approved counseling session
  • Pass a financial assessment to prove you can afford taxes, insurance, and upkeep

    Pros – Let’s Talk Upside

  • No monthly mortgage payments (again, as long as you meet your obligations)
  • Stay in your home and maintain ownership
  • Flexible payout options—take what you need, when you need it
  • Non-recourse protection—you (or your heirs) won’t be stuck with the bill if the loan exceeds the home’s value

    Now for the Catch – And There Are a Few

  • Fees are high: Expect closing costs, origination fees, and upfront mortgage insurance (2% of home value up front, plus ongoing premiums)
  • Equity erosion: You’re slowly eating away at the value of your biggest asset
  • Foreclosure is still possible if you stop paying property taxes or insurance
  • It can complicate estate plans: If you plan to leave the home to your kids free and clear, this changes the game
  • Not great for short-term plans: Reverse mortgages are expensive if you’re only staying in your home another year or two

     

    Should You Even Be Considering One? Ask Yourself:

  • How much equity do I have? The more you own outright, the better this works.
  • How long am I staying put? Less than 5 years? Probably not worth it.
  • Am I OK leaving less to heirs? Because you will be.
  • Can I afford taxes, insurance, and repairs? If not, this isn’t a lifeline, it’s a ticking clock.
  • Do I need the money now or do I just think I might? Don’t burn equity for lifestyle spending. But if you’re covering healthcare or downsizing later, it might be smart.

 

Bottom Line: A Tool—Not a Magic Trick

Reverse mortgages aren’t good or bad on their own. They’re a financial tool—and like any tool, they work best when used the right way, by the right person, for the right job.

If you’re strapped for cash and need to stay in your home? This might give you breathing room. But if you’re trying to pad a travel fund or just “tap equity” without a real plan, pump the brakes.

Talk to a HUD counselor, get advice from a real financial planner, and bring your family into the conversation—especially if leaving a legacy is part of your plan.

Because once you sign, there’s no going back.