(This article originally appeared in the May 2026 issue of Military Officer, a magazine available to all MOAA Premium and Life members who can log in to access our digital version and archive. Basic members can save on a membership upgrade and access the magazine.)

If you’re retired and you own a home, you might have wondered whether a reverse mortgage is a tool that could improve your life. Alternately, you might think you would never take out a reverse mortgage because you’ve only heard bad things about them. Either way, knowing more about reverse mortgages will help you decide whether it’s a good addition to your financial toolkit.

A reverse mortgage is a loan that allows older homeowners to convert part of their home equity into cash without making monthly mortgage payments. They can access that cash as a lump sum, a stream of payments (either fixed or lifetime), or a line of credit to be used as wanted or needed.

The loan is repaid when the property is sold, the borrower moves out for more than 12 months, or the borrower dies.

If the property is sold, the reverse mortgage will be paid from the proceeds of the sale. If you move out, or the property is inherited because of the death of the homeowner, there are three ways the loan can be repaid: The property may be sold, the loan may be refinanced into a conventional loan (requiring eligibility), or the owner may use other resources to pay the loan. The owner or their heirs keep whatever value remains after paying off the loan.

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There are two primary types of reverse mortgages, with different eligibility requirements and different best uses.

The first type is a home equity conversion mortgage (HECM). These reverse mortgages are federally insured through the Federal Housing Administration (FHA) and administered by the Department of Housing and Urban Development. There are limits on how much you can borrow through an HECM loan; homeowners with higher value homes might be unable to access as much of their equity as they could through another product.

HECM loans require up-front and ongoing mortgage insurance premiums that add to the cost of the loan, but lower interest rates may offset the cost since the lender is protected by FHA guarantees. In addition, HECM loans are nonrecourse, meaning you’ll never owe more than the home’s value when the loan is repaid.

[FROM HUD.GOV: Home Equity Conversion Mortgages for Seniors]

The second type of common loan product is a proprietary reverse mortgage, also known as a jumbo reverse mortgage. These are offered by individual lenders and might not have the same consumer protections as HECM loans. Jumbo loans might have higher interest rates, but they do not have the FHA mortgage insurance premium, so up-front costs might be lower.

In addition, lenders may loan to younger borrowers or on different types of properties that are ineligible for HECM loans.

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Older Americans may turn to a reverse mortgage for a variety of purposes. This might include a supplement to other streams of income, to pay off a mortgage to improve cash flow, to avoid capital gains taxes on a highly appreciated property, to pay for home health care, or to modify their home into a more senior-friendly layout.

One aspect of reverse mortgages that might come as a surprise is that sometimes the amount of equity doesn’t decrease, even as the borrower is taking money out of their property via a reverse mortgage. That’s because the property’s value typically increases over time. As long as the reverse mortgage isn’t costing more than the amount at which the property value increases, equity can remain constant or even continue to rise.

[MOAA’S RETIREMENT GUIDE: Essentials for Aging in Place]

Before deciding whether to pursue a reverse mortgage, consider several factors. First, they are relatively high-fee products. There are up-front costs, interest over time, and possibly mortgage insurance premiums. These costs mean your loan balance increases over time, potentially leaving your heirs with less.

Second, you will need to keep up with taxes, insurance, and maintenance on your property. Make sure you have enough cash flow to stay in the property.

Lastly, you will likely want to work with a financial planner or housing counselor with expertise in senior living. They would ideally help you determine whether a reverse mortgage works as part of your broader income, tax, and estate strategy.

A reverse mortgage can be a powerful financial tool if you plan to stay in your home for the long term. It allows you to use equity you’ve earned in your home without having to sell the property, potentially improving your standard of living, allowing you to remain at home longer, and providing a vital financial cushion against emergencies.

However, it’s possible your heirs will inherit less money, depending on the housing market, the amount you borrow, and the interest and fees you pay.

While there’s no right answer in regard to a reverse mortgage, it’s important to be knowledgeable about this option.