Reverse mortgage guide
Reverse Mortgage Pros and Cons: What It Costs and What You Give Up
A reverse mortgage can take a monthly payment off your plate for the rest of your life in the house. It does that by spending equity. Here is the full ledger, both columns.
The biggest disadvantage of a reverse mortgage is that the balance grows every month instead of shrinking, which eats into the equity left for you or your heirs. The second is cost: a HECM loads most of its fees up front, so it makes the most sense when you plan to stay put for years. Those two facts belong at the top of the list, and they're where I start with every client over 62.
The rest of the list matters too, including the parts that make a reverse mortgage a very good fit for some people. If you want the product side, programs and HECM limits, that's on my reverse mortgage Orange County page. This guide is the ledger.
The short version
Pros - No required monthly mortgage payment. - A line of credit whose unused portion grows over time. - Non-recourse: you and your heirs never owe more than the home is worth. - You stay in the house and keep the title.
Cons - The balance grows, so equity shrinks. - Real upfront costs. - You still owe property taxes, insurance and upkeep. - You have to live there as your primary residence. - Less equity passes to your heirs. - Cash you hold can affect needs-based benefits like SSI and Medi-Cal.
The pros, one at a time
No required monthly mortgage payment
This is the reason most people call me. Take a retired couple in Placentia (an illustration) with a $2,400 mortgage payment and a paid-off car doesn't have a spending problem. They have a payment problem. A HECM can pay off that existing mortgage at closing, and from then on there's no required principal and interest payment. You can still pay if you want to. Nobody makes you.
A line of credit that grows
If you take your proceeds as a line of credit, the unused part grows at the same rate the loan balance would. It isn't interest paid to you. It's more room to borrow later. Someone who opens a line at 64 and leaves most of it alone can have noticeably more available at 78. That makes a HECM line useful as a backstop for long-term care, a market downturn or a new roof, and a HECM line can't be frozen or cut the way a HELOC can.
Non-recourse
A HECM is insured by FHA. When the loan comes due, the most anyone repays is what the house sells for. If the balance has grown past the home's value, FHA's insurance covers the gap. Your kids don't inherit a debt. This is the feature that the mortgage insurance premium actually pays for.
You stay in your house
The title stays in your name. The lender records a lien, the same as any mortgage. You don't sign the house over to anyone.
The cons, one at a time
The balance grows
Every month, interest and the annual mortgage insurance premium get added to what you owe. Nothing is coming off it unless you choose to pay. Over ten or fifteen years, that adds up.
Illustration, round numbers only: a Yorba Linda homeowner, 70, with a $1,100,000 house and no mortgage takes $200,000 out on day one. Ten years later, the balance is well above $200,000, because a decade of interest and insurance has been added. If the house has also appreciated, there may still be plenty of equity. If it hasn't, there's less. The math depends on the rate and on the housing market, and I'll run it both ways with you.
The way to limit this is to draw only what you need. Money you don't take doesn't accrue interest.
It costs real money up front
The costs are the second most common objection, and it's a fair one. Here's what goes into a HECM:
- Upfront mortgage insurance premium: 2% of the maximum claim amount. The maximum claim amount is the lower of your home's appraised value or the 2026 FHA limit of $1,249,125. On an $800,000 home, that premium is $16,000. On a Yorba Linda house worth $1,500,000, it's capped at 2% of $1,249,125, about $25,000.
- Annual mortgage insurance premium: 0.5% of the outstanding balance. It isn't billed to you. It's added to the loan each month.
- Origination fee, capped by HUD. The lender can charge the greater of $2,500 or 2% of the first $200,000 of the maximum claim amount plus 1% of the amount above that, with a hard cap of $6,000. Some lenders reduce or waive it, which is one reason I shop it.
- Third-party closing costs. Appraisal, title insurance, escrow, recording and the counseling session. These are the same kinds of costs you'd see on any mortgage.
- Servicing. Some lenders charge a small monthly servicing fee. Many now build it into the rate instead.
Most of this can be paid from the loan proceeds, so it doesn't come out of your checking account. It still comes out of your equity. That's why a reverse mortgage you close and then abandon in three years is an expensive way to borrow.
You still have bills
A reverse mortgage replaces the mortgage payment. It doesn't replace property taxes, homeowners insurance, HOA dues or maintenance. If those go unpaid, the loan can come due. The lender runs a financial assessment before closing to make sure you can carry them, and it may set aside part of your proceeds to pay them for you. In the hill neighborhoods of Yorba Linda, Anaheim Hills and Brea, getting insurance in place is sometimes the hardest part of the file.
You have to live there
The home must be your primary residence. If you move out for more than 12 months in a row, including a long stay in assisted living, the loan comes due. A reverse mortgage fits people who plan to stay. If you're thinking about moving closer to the grandkids in two years, a different tool is probably better, or you can buy the next home with one. See buying your next home with a HECM.
Your heirs get less
When the last borrower leaves, the loan gets paid off from the house. Heirs can sell and keep what's left, pay off the loan and keep the home, or hand it back. For a HECM, if the balance exceeds the value, they can keep the house by paying 95% of the appraised value. What they can't do is receive the same equity they would have without the loan. I encourage clients to bring their kids into the conversation early. It saves a lot of surprises later.
It can affect needs-based benefits
Social Security and Medicare don't care about reverse mortgage proceeds. They aren't needs-based. SSI and Medi-Cal are. Loan proceeds aren't income, but money you draw and leave sitting in an account past the month you receive it can count as an asset. If you're on either program, or might be, talk to a benefits specialist before you draw a lump sum. A line of credit that you draw from as needed usually handles this better.
Who it fits, and who it doesn't
It usually fits: - You're 62 or older and plan to stay in the home for years. - You have a lot of equity and a monthly payment you'd like to eliminate. - You want a standby line of credit for later life.
It usually doesn't: - You might move within a few years. - Leaving the house free and clear to your kids is your top priority. - You'd have trouble keeping up with taxes and insurance. - You need a small amount and can comfortably make a payment. A HELOC may cost less to set up.
If you're still at the "am I even eligible" stage, the checklist is in reverse mortgage requirements.
How I'd approach it
I spent seventeen years at Chase before I became a broker. A bank shows you its reverse product, if it has one. I compare HECM and proprietary reverse options across lenders and show you, side by side, the cash at closing, the line of credit and the projected equity left in year 5, 10 and 15. If a reverse mortgage is the wrong answer, I'll say so and show you the alternative.
Before you apply for a HECM, you'll also meet with an independent HUD-approved counselor. Bring your questions from this page. They're the right ones.
Questions people ask
What is the biggest disadvantage of a reverse mortgage?
The balance grows. You make no required monthly mortgage payment, so interest and mortgage insurance get added to the loan every month, and that reduces the equity left for you or your heirs over time. The second disadvantage is cost: a HECM front-loads its fees, so it rarely makes sense if you might move in a few years.
What is the average cost of a reverse mortgage?
There isn't a useful average, because the costs scale with your home's value. For a HECM, the pieces are an upfront FHA mortgage insurance premium of 2% of the maximum claim amount, an annual premium of 0.5% of the balance, an origination fee that HUD caps at $6,000, normal third-party closing costs such as appraisal, title and escrow, and in some cases a servicing fee. Most of it can be paid from the loan rather than out of pocket.
Can a reverse mortgage affect Social Security or Medicare?
No. Social Security and Medicare are not needs-based, so reverse mortgage proceeds don't change them. Needs-based programs like SSI and Medi-Cal are different: money you draw and leave sitting in an account past the month you receive it can count as an asset. This matters again in 2026: California removed the Medi-Cal asset test in 2024, then reinstated it on 1 January 2026 at $130,000 for an individual, plus $65,000 for each additional household member. If Medi-Cal is part of your plan, draw what you need rather than parking a large balance, and talk to an elder law attorney before you set the loan up.
Can I lose my house with a reverse mortgage?
You can't lose it for failing to make a mortgage payment, because none is required. You can lose it if you stop paying property taxes or homeowners insurance, let the home fall into serious disrepair, or move out for good. Those obligations are the ones to plan around.
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