Reverse Mortgages Revisited: The Difference Between Equity Freedom and a Costly Mistake

Reverse Mortgages Revisited: The Difference Between Equity Freedom and a Costly Mistake

Nicholas Morine

Sat, September 12, 2026 at 8:00 PM GMT+3 3 min read

There's been a lot of talk about the much-maligned reverse mortgage in recent days, with some of the negative connotations attached to the term being valid – and others only really coming into play if the financing is sought out as the result of a budgetary panic rather than a smart money play.

On the positive side: A reverse mortgage can actually be a wise move in certain circumstances, allowing those aged 62 or older – at least in the case of the most popular, federally insured Home Equity Conversion Mortgage (HECM) – to remain in their own homes while gaining more immediate financial stability.

Other pros when working with the HECM option? You're able to stay in the home with no set time limit, provided you keep up-to-date on homeowner's insurance and property tax payments – and any HOA dues and assessment costs – and the income you receive from the HECM is tax-free (in other words, your Social Security benefits and Medicare benefits won't be impacted by taking out this form of reverse mortgage), per the Consumer Finance Protection Bureau (CFPB).

The vast majority of reverse mortgages are HECMs, according to the AARP, accounting for about 95% of all outstanding loans of this nature. You must be at least 62 years old to apply, and also are required to take on counseling from a HUD-certified counselor at a fee ranging somewhere around $125.

The best part about working with an HECM are the protections afforded to borrowers. Most notably, you or your heir(s) can never owe more than what the home is worth. Proprietary reverse mortgages not covered under the HECM umbrella are innately riskier and generally are not advised.

Reverse Mortgages Can Also Be a Very Expensive Mistake

Now, let's talk about some of the costly mistakes that can come along with the reverse mortgage concept.

First of all, the basics: Taking out a reverse mortgage by definition increases your debt load while slashing the equity you've worked hard to build in your property. There are fees and interest payments involved, which also means that you're paying for the privilege of access to additional funds in the here-and-now.

It could also limit your options should you ever wish (or need) to be moved into a nursing home or assisted living facility, or simply to downsize or move closer to friends or family.

Another problem is that reverse mortgages can actually be more expensive in terms of overall borrowing costs when compared to other options such as the popular home equity line of credit (HELOC).

Some too-wise-for-their-own-good folks might also think that it's better to take out a HECM to delay taking Social Security payments until full retirement age or even age 70 – but the data, provided by the Consumer Financial Protection Bureau – specifically highlights that this is actually a poor game plan, with you ending up actually losing money and equity both.

Finally, reverse mortgages can (and do) go sour at times, pushing you into default. A failure to keep up with tax or insurance payments, neglecting to keep the property maintained and repaired, or not using the home as a principal residence can all force you into facing a notice of default or foreclosure, CFPB said.

That's very bad, obviously, and failing to fix the issue could result in the loss of your home.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

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