A reverse mortgage can put cash in your hands without a monthly mortgage payment, and that’s the whole appeal. The catch is that the balance grows every month, you still carry the cost of the house, and your heirs inherit the bill. Here are the reverse mortgage pros and cons, who it really fits, and what to look at instead.
If you’re under 62, or you’d rather not watch a balance grow, a home equity investment from Point is worth a look. It has no monthly payments, funds $30,000 to $600,000 and takes credit scores from 500. It has its own cost at the end, and that’s covered below too.
Reverse mortgage pros and cons
Every reverse mortgage fact in this article comes from the Consumer Financial Protection Bureau. The CFPB calls the Home Equity Conversion Mortgage, or HECM, the most common type of reverse mortgage, and its reverse mortgage pages are written about the HECM. If a lender pitches you a different kind, ask how it differs before you go any further.
The upsides
What a reverse mortgage does well
No monthly mortgage payments.
The title stays in your name, like a regular mortgage.
You can use the money to pay off an existing mortgage balance at closing.
Counseling is required. You have to sit down with a HUD-approved agency before you can get one, and that gets you an outside opinion.
On most reverse mortgages you get a three-day right to cancel after closing.
If the balance ends up bigger than the home is worth, heirs can still settle it by selling for at least 95 percent of the appraised value.
The downsides
What it costs you
The balance goes up, not down. Interest and fees get added every month, and your equity shrinks to match.
Typically more expensive than other home loans.
You still pay property taxes, homeowners insurance and upkeep, or the loan can come due early.
You have to be 62 or older, and the home has to be your main residence.
The loan comes due when the last borrower dies, sells or stops living there.
There is less equity left for your heirs, and they have a short window to deal with it.
The CFPB puts it bluntly. A reverse mortgage is not free money. Money borrowed, plus interest, plus fees each month equals a rising balance. That’s from its what is a reverse mortgage answer.
What a reverse mortgage costs
So what does it cost? This is where most people get surprised. The CFPB’s cost page lists the one-time costs. Origination fees of $6,000 or less go to the lender, you pay third-party closing costs like an appraisal and title search, and there’s an initial mortgage insurance premium paid to the Federal Housing Administration. You can pay them in cash or out of the loan, but taking them from the loan means less money for you.
Then the monthly costs start. They get added to the balance each month, so you’re charged interest and fees on top of last month’s interest and fees. That includes servicing fees and an annual mortgage insurance premium equal to 0.5% of the outstanding balance. The bigger the balance and the longer you hold it, the more you pay.
So how do you keep costs down? Borrow only what you need. A reverse mortgage works better as a small, targeted tool than as a big pile of cash you spend freely.
Your obligations while you have one
No monthly mortgage payment doesn’t mean no bills. You have to keep paying property taxes and homeowners insurance, live in the home and keep it in good repair. Miss any of those and the loan may have to be paid back sooner, as the CFPB explains in its repayment answer. You also can’t owe federal debt like back taxes or student loans going in, though you may use the loan money to clear them.
If taxes, insurance and repairs already stretch your budget, that’s the part to stare at. A reverse mortgage takes away one bill and leaves the others exactly where they were.
Is a reverse mortgage a good idea?
Is it, though? Sometimes. It depends on how long you plan to stay and what you want the money for. Here’s how it breaks down.
It could fit you if
You’re 62 or older, the house is paid off or close to it, and you plan to stay for years. You can cover taxes, insurance and repairs from your own income. You want one steady source of cash, you’ve done the counseling, and you’ve thought about who gets the house later.
It probably doesn’t fit you if
You might move in the next few years, since you’d pay the upfront costs for a short stretch. It also falls short if you want the house to go to your kids with plenty of equity left, or if property taxes and insurance are already hard to cover.
One more warning from the CFPB: if you take one out too young, you may run out of money when you’re older and more likely to have less income and higher health care bills. Its page on who can get a reverse mortgage also lists waiting, a home equity loan or line of credit, refinancing, downsizing and cutting expenses as alternatives to weigh first. It adds that a home equity loan or HELOC might be cheaper but usually comes with monthly payments, and qualifying depends on your income and credit. We compare those head to head in our reverse mortgage vs HELOC guide.
Reverse mortgage for 55 and older, or under 62?
This is where people get stuck. Searching for a reverse mortgage at 55 or under 62 turns up plenty of ads, but the CFPB says HECMs are available only to homeowners who are 62 and older. If you’re 55, you’d have to wait. Waiting isn’t all bad news, since taking one too early can leave you short later.
If you need the cash now, you have other routes. Point says its home equity investments are available to homeowners under 62 and don’t have to be in first lien position, so you don’t need to pay off your first mortgage. We cover more options in our reverse mortgage alternatives guide and on how to get equity out of your home without a loan.
What a reverse mortgage means for your heirs
This part gets skipped in a lot of sales pitches. The CFPB says a HECM becomes due and payable after the death of the borrower and any co-borrower or eligible non-borrowing spouse. Once your heirs get the due and payable notice from the lender, they have 30 days to buy the home, sell it or turn it over to the lender. It might be possible to stretch that to six months, which gives them time to sell or get their own financing. All of that is on its heirs page.
Here are the three ways it can go.
- 1Keep the home
Your heirs repay the full loan balance, and they might need a loan of their own to do it.
- 2Sell it and keep the difference
If the home is worth more than the balance, they sell, repay the lender and keep what’s left.
- 3Sell it for less than the balance
If the home is worth less than the balance, they can settle by selling for at least 95 percent of the appraised value. The rest is covered by the mortgage insurance you paid into.
A spouse who isn’t a co-borrower is a separate case. They may be able to stay only if they qualify as an eligible non-borrowing spouse under HUD’s rules. Moving into a nursing home or assisted living matters too. Being away more than 12 consecutive months in a healthcare facility can trigger repayment when no co-borrower is living there, per the CFPB page on moving out. If this is you, talk to your kids now.
The alternative: a home equity investment from Point
A home equity investment, or HEI, works differently. A company gives you a lump sum now. There are no monthly payments and no interest accrues. When you settle the investment, the amount is based on your home’s future value, so you give up a share of any gain instead of paying interest.
you’re under 62, still have a first mortgage you want to keep, or want cash with no monthly payments.
you want a shorter commitment. Hometap could work among other qualifying criteria, if your home is located in an eligible state.
Hometap’s offer is subject to eligibility, and its availability depends on whether your home is located in an eligible state. It serves 26 states.
Point has no income requirements and takes credit scores from 500. Its own reverse mortgage comparison lists the differences it wants you to see. It says an HEI is available to homeowners under 62, doesn’t need to be in first lien position, has no occupancy requirements so you aren’t forced to settle if you move out or go into long-term care, and can be assumed by heirs. Those are Point’s claims, so confirm the terms in your own offer. But they hit the biggest reverse mortgage headaches head on, which is why it’s the alternative most worth pricing.
The catch with Point
But Point isn’t free either. The fee is up to 4.9% of the amount with a $2,000 minimum, plus third-party closing costs like an appraisal and escrow. Point places a lien on your home, and what you settle is based on your home’s future value when you exit. So you hand over a portion of future appreciation. If your home climbs a lot, that share can end up costing more than a reverse mortgage or HELOC would have. Our Point review goes through the rest, and our home equity agreement pros and cons page covers the trade in more depth.
Point also isn’t everywhere and it doesn’t take every home. It isn’t available for manufactured homes, co-ops or homes owned by an LLC, and it serves 30 states plus D.C.
Point (30 states plus D.C.)
Check your state before you spend time on an offer.
- Arizona
- California
- Colorado
- Connecticut
- Florida
- Georgia
- Hawaii
- Illinois
- Indiana
- Iowa
- Kentucky
- Maryland
- Michigan
- Minnesota
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Jersey
- New York
- North Carolina
- Ohio
- Oregon
- Pennsylvania
- South Carolina
- Tennessee
- Utah
- Virginia
- Washington
- Wisconsin
- Washington, D.C.
Reverse mortgage vs Point vs a HELOC
| Option | Age | Monthly payment | Biggest catch | Where to start |
|---|---|---|---|---|
| Reverse mortgage (HECM) | 62 and older | No mortgage payment | Balance grows, and you still pay taxes and insurance | Counseling is required first |
| Point | No age minimum | None | Share of future home value at settlement, plus a fee of up to 4.9% | Get My Point Offer |
| Hometap | No age minimum stated | None | 10-year term, among other qualifying criteria | Check Hometap Eligibility |
| Figure HELOC | No age minimum stated | Yes | You need income for the payment, and a score from 600 in most states | Check Figure’s Rate |
Hometap’s offer is subject to eligibility, and its availability depends on whether your home is located in an eligible state.
Which one fits you
You’re 62 or older, staying put, and want one steady source of cash
A reverse mortgage is built for this. Do the counseling, borrow only what you need and keep the taxes and insurance covered.
You’re under 62, or you want to keep your first mortgage
A reverse mortgage is off the table or awkward. Start with Point. It has no age minimum and doesn’t need to be in first lien position.
You might move or need care in the next few years
The upfront costs on a reverse mortgage get spread over a short time. Point’s HEI has no occupancy requirements, so you aren’t forced to settle if you move out or go into long-term care.
You want the most equity left for your kids
Neither is clean. A reverse mortgage balance keeps growing, and an HEI takes a share of any gain. Price both with your heirs in mind and ask each for the numbers in writing.
You have steady income and can handle a payment
A HELOC may cost less than either one. Figure is one to price. Its HELOC takes credit scores from 600 in most states (640 in a few) and the rate check is a soft pull. It has a monthly payment, so it only works if your budget can take it. More ideas are in our HELOC alternatives guide.
Check your offers
Looking at a number is free, so request more than one and compare. If you’re weighing a reverse mortgage, get a HUD-approved counselor’s view first, then see what an HEI would look like next to it.
More to read: the best home equity investment companies.
Reverse Mortgage Pros and Cons FAQs
The main pro is no monthly mortgage payment, and the title stays in your name. The cons: the balance grows every month, the costs are typically higher than other home loans, you still pay property taxes, insurance and upkeep, and the loan comes due when you die, sell or stop living there.
It can be if you’re 62 or older, plan to stay for years, can cover taxes, insurance and repairs, and borrow only what you need. It’s a poor fit if you may move soon, want to leave plenty of equity to your heirs, or already struggle with the house costs. HUD-approved counseling is required before you can get one.
Not the most common kind. Home Equity Conversion Mortgages are only for homeowners who are 62 and older. Point says its home equity investments are available to homeowners under 62, so that’s one place to look at 55.
The HECM is only for homeowners 62 and older, so under 62 it isn’t an option. A home equity investment from Point has no age minimum, funds $30,000 to $600,000 and takes credit scores from 500, if your home is in one of its 30 states or D.C.
The loan becomes due and payable after the borrower, any co-borrower or an eligible non-borrowing spouse dies. Heirs then have 30 days to buy, sell or turn over the home, and it might be extended up to six months. If the home is worth less than the balance, heirs can settle by selling for at least 95 percent of the appraised value.
A home equity investment is one. Point gives you a lump sum with no monthly payments, and what you settle is based on your home’s future value. The fee is up to 4.9% with a $2,000 minimum, plus third-party closing costs. A HELOC is another, if you can handle a monthly payment.
