Why a Reverse Mortgage Deserves a Second Look
Mention reverse mortgages in a room full of people and you might end up with more finger foods than conversation. These loans often carry a heavy stigma, thanks to years of misinformation and confusion. But reverse mortgages, when used thoughtfully, can serve as a powerful financial tool for older homeowners who want to increase cash flow in retirement without selling their home.
Don Graves, founder of the Housing Wealth Institute, believes it’s time to demystify the product. Speaking on the Decoding Retirement podcast, Graves described the reverse mortgage as “just a mortgage,” explaining that it’s not spooky or dangerous. Specifically, he was referring to the Home Equity Conversion Mortgage (HECM), a federally insured option for homeowners aged 62 and older. This loan allows them to convert a portion of their home equity into tax-free income while maintaining ownership of their property and eliminating the need for monthly mortgage payments.
Reverse mortgages have existed since 1961 and became federally backed in 1988. In the United States, the HECM is the most common reverse mortgage, making up around 98% of all reverse mortgages nationwide. Internationally, these loans go by more descriptive names like “lifetime mortgages” or “equity release,” which better capture their purpose: unlocking home equity during retirement while allowing homeowners to stay in place.
Although not everyone is a good candidate, there are specific groups who may benefit greatly. Graves noted that over his 26 years working in the space, he’s spoken to more than 16,000 people, but only 3,000 moved forward with a reverse mortgage. He emphasized that this option is best for retirees who plan to stay in their home for the long haul, have a clear need or strategy for the funds, and are looking for additional income or a way to eliminate monthly mortgage payments.
Retirement today is more complex than it was for previous generations. Traditionally, retirees have relied on three financial buckets: income from Social Security or a pension, investment returns, and part-time work. But rising costs and uncertain markets have made it harder to stretch these income sources across a decades-long retirement. Graves argues that retirees are often ignoring their largest untapped resource—their home equity. According to him, this is the “fourth bucket,” and unlocking it through a reverse mortgage can improve cash flow, preserve savings, reduce risk, and increase liquidity.
Understanding how a reverse mortgage works is key to determining whether it’s a smart move. The loan amount is based on the youngest borrower’s age, the value of the home, and projected interest rates. Many borrowers choose a growing line of credit, which compounds over time—currently around seven percent. Common uses include supplementing income, eliminating mortgage payments, creating an emergency fund, or even buffering against investment losses during market downturns.
Of course, these loans come with responsibilities and costs. Borrowers must stay in the home, keep up with maintenance, pay property taxes, and maintain homeowners insurance. The loan becomes due once the borrower moves out, enters long-term care for over a year, or passes away. Costs include mortgage insurance premiums, origination fees, and closing costs. But there are consumer protections in place as well. Every borrower must go through independent counseling with an FHA-approved advisor, and all HECMs are non-recourse loans, meaning the borrower or their heirs will never owe more than the home’s value.
Graves recommends that retirees consider setting up a reverse mortgage line of credit early, before it’s needed. By doing so, they allow the available credit to grow over time, giving them more financial cushion later. He believes that reverse mortgages are best viewed as part of a long-term plan, not a last-ditch effort.
For those considering the option, Graves suggests taking time to learn the details, consult with a reputable lender, and approach the conversation with patience and preparedness. With the right understanding, a reverse mortgage could go from a financial taboo to a strategic asset—quietly transforming how retirees approach the later chapters of their financial lives.