Reverse Mortgages Are a Bad Deal: Why We Strongly Advise Against Them

For many older homeowners, the idea of staying in your home and unlocking equity sounds like a dream — a way to enjoy your golden years without leaving the place you love. That’s the sales pitch behind reverse mortgages — a complex financial product marketed to people 62 and older as a way to "age in place" without monthly payments. It's a message designed to evoke comfort, security, and independence.

But scratch the surface, and the dream starts looking like a trap — one that can quietly drain your equity, limit your future options, and leave your family with nothing but stress and debt.

What Is a Reverse Mortgage, Really?

A reverse mortgage is a loan against your home equity — except instead of making payments, you receive them. Over time, your debt grows instead of shrinking. Interest, mortgage insurance premiums, servicing fees, and upfront closing costs accumulate while your home equity drains away. The most common type is the Home Equity Conversion Mortgage (HECM), backed by the FHA.

Unlike a traditional mortgage that helps you build equity through repayment, a reverse mortgage does the opposite: it erodes your equity with each passing month. That’s because the loan balance increases over time due to compounded interest and fees, while your ownership stake in the home diminishes. Most borrowers don't realize how quickly this can snowball until it's too late. According to the Consumer Financial Protection Bureau, many seniors are shocked when they discover that years of borrowing left them with very little equity — or none at all — despite still being responsible for taxes, insurance, and maintenance.

Even worse, the appeal of reverse mortgages is often wrapped in patriotic or sentimental language — "stay in your home," "tap into your legacy," "retire with dignity." But these emotional pitches hide the reality: you're borrowing from your future at a steep price.

And while HECMs are federally insured, that protection does not extend to the homeowner. It only guarantees that the lender will get paid, even if the home value drops. This federal backing often gives borrowers a false sense of security, masking the very real risks of foreclosure, equity loss, and displacement.

But despite its federal branding, this product is routinely abused, misrepresented, and misunderstood. Even when it’s not a scam, it can be a financial disaster.

The Cost Is Exorbitant — and Hidden

Reverse mortgages are among the most expensive ways to borrow. Here’s why:

• Upfront costs include thousands in origination fees, mortgage insurance, and closing costs.

• Ongoing charges like servicing fees and compound interest pile up monthly, shrinking your equity even faster.

• Annual fees, plus the costs of mandatory property taxes, insurance, and maintenance, still fall on your shoulders.

Unlike a traditional mortgage, you’re not building equity — you’re losing it, steadily and irreversibly.

Example: How the Costs Stack Up

Let’s say you’re 72 years old, own your home outright, and it’s worth $400,000. You take out a reverse mortgage and borrow $200,000. Here’s how quickly that “income” starts costing you:

• Interest: If the rate is 7%, compounded monthly, the interest alone adds approximately $1,167 per month to your balance in the first year — totaling about $14,000 annually.

• Servicing Fees: Many lenders charge $30–$35 per month to cover the cost of managing your loan — that’s another $360–$420 per year.

• Annual Mortgage Insurance Premium: HUD requires you to pay an insurance premium of 0.5% of the outstanding balance annually — that’s $1,000 in year one on a $200,000 loan.

Add it up, and you’ve already accumulated over $2,400 in year-one costs, on top of the growing loan balance. This doesn't even include upfront costs like the $6,000–$10,000+ in origination fees, title insurance, appraisal, and other closing costs. And remember, you're still on the hook for:

• Property taxes

• Homeowners insurance

• Ongoing home maintenance and repairs

Over time, what started as a $200,000 reverse mortgage could balloon into a $350,000+ debt in just a few years — while your home's value remains the same or potentially declines. You've essentially destroyed 50% of the value of your home by taking out a reverse mortgage.

"Stay in Your Home" — Until You Can't

Reverse mortgages are sold on the promise that you can stay in your home for life. But if you fail to pay taxes, insurance, or make needed repairs, you can be forced into foreclosure — even if you’ve never missed a loan payment. Many borrowers don’t understand these risks until it’s too late.

One of the most dangerous misconceptions is that these loans are “foreclosure-proof.” In reality, reverse mortgages come with strict occupancy and upkeep requirements. If you’re hospitalized or moved into a care facility for more than 12 months, the lender can call the loan due — forcing a sale of the home. Similarly, missing a property tax bill or allowing the house to fall into disrepair can trigger foreclosure, regardless of your payment history.

Worse still, if one spouse is left off the loan (which happens disturbingly often, especially if only one borrower qualifies based on age), they may have no right to remain in the home after the borrower dies or moves out. Surviving spouses who are not listed on the loan documents may be forced to vacate unless they can repay the entire loan balance — an impossible task for many on a fixed income.

The result? What was supposed to be a strategy for aging in place often ends in loss of control, displacement, and emotional distress — not just for the borrower, but for their surviving loved ones.

The Industry Preys on Vulnerability

The elderly are frequent targets of reverse mortgage scams and aggressive sales tactics:

• Contractors urge homeowners to fund overpriced repairs with a reverse mortgage.

• Scammers use fake investment pitches or house-flipping schemes to extract home equity.

• Some advisors pressure seniors into buying insurance or annuities with reverse loan proceeds, turning one bad product into several.

Even legitimate lenders lean heavily on emotional manipulation — don’t sell your home, stay where you’re comfortable, unlock your wealth — while glossing over the devastating long-term consequences.

It’s Not "Free Money." It’s Debt with a Ballooning Price Tag

Some borrowers are misled into believing reverse mortgage payments are “income.” They’re not. Every dollar received is a loan — one you’ll owe back, with interest, fees, and insurance. And if you leave the home or die, your heirs must repay the full amount or risk losing the house.

This isn’t just a financial problem. It’s an emotional landmine for families who expected to inherit the home but now must sell it under pressure — often just to cover the loan balance. Heirs may have limited time to decide whether to pay off the debt, refinance it, or list the home for sale, often during a difficult time of grieving. If the real estate market has softened, or if the home is in disrepair, the sale proceeds might not even be enough to cover the full balance — leaving families with hard choices and little time to make them.

Better Alternatives Exist

If you need access to your home’s equity or supplemental income in retirement, there are smarter, safer options — and they don’t come at the expense of your long-term financial security or your family’s peace of mind:

• If you still have income or retirement assets, qualify for a home equity lines of credit (HELOCs) or home equity loans or cash out refinance, both options have lower fees and lower rates and won't destroy your hard earned home equity

• If you do not have income or enough retirement assets, consider downsizing (whether into a nice rental or a cheaper home) or selling to a family member with a lease-back agreement preserves flexibility without draining your estate.

It’s important to remember: there’s no shame in downsizing or asking your family for help. Taking on expensive, compounding debt to stay in a house you can no longer afford isn’t a badge of honor — it’s a financial risk with lasting consequences. Sometimes the smartest move isn’t borrowing more, but spending less and leaning on the people who care about you.

Even a well-structured asset depletion loan or bank statement mortgage may make more sense — especially with the help of a savvy mortgage broker who understands the full picture.

The Bottom Line: Reverse Mortgages Are Rarely Worth It

If someone is pushing a reverse mortgage on you — pause. Ask who benefits. These loans exist not because they’re financially sound for seniors, but because they’re wildly profitable for lenders. That’s why the industry pours millions into advertising, celebrity endorsements, and high-pressure sales techniques.

A reverse mortgage might sound like a lifeline, but in reality, it often leaves people with less equity, fewer options, and a bigger mess for their family. Don’t let your desire to stay in your home blind you to the cost of doing so. There are better paths — and better people — to help you walk them.

 Schedule a call with me today or get in touch with me by completing this quick form, and I'll help you understand your options.