If you want extra cash in retirement without selling your home, a reverse mortgage can be one way to use your home equity. This tool lets you borrow against your home and get money now, with repayment due later. It’s not free money. You still build interest and reduce equity over time.
What a Reverse Mortgage Does
A reverse mortgage lets you convert part of your home’s value into cash. You must be older (often 55+), and the home must be your primary residence. You don’t make monthly payments. Instead, interest and fees are added to the balance. You repay it when you sell, move out, or die.
You can take the money as a lump sum, regular payments, or a combination. Each choice affects how much interest you pay.
How It Works
Lenders look mostly at your age and home value, not income or credit. The older you are and the more your home is worth, the more you can borrow. You typically borrow up to about half of the home value.
Interest rates on reverse mortgages run higher than traditional mortgages or lines of credit. And because you don’t make payments, the amount you owe grows over time.
Pros You Should Know
No regular payments. You don’t need to send money to the lender every month.
Money is tax‑free. The funds you get aren’t treated as income.
You keep your home. You stay in the house and you still own it as long as you meet basic requirements like paying taxes and insurance.
These features make reverse mortgages fit for people who are cash‑poor and house‑rich, or who want retirement cash without monthly obligations.
Major Downsides
High cost. Interest rates and setup fees tend to be higher than on most other loans. These costs compound and reduce your equity over time.
Equity shrinks. You borrow against your home value, and the balance grows. That means less for your estate or heirs.
Repayment triggers. The loan must be repaid if you sell, move out, or die. Heirs may need to pay the balance or sell the home to satisfy the loan.
Can limit other borrowing. Some lenders won’t let you use other home‑secured credit once a reverse mortgage is in place.
Some people treat reverse mortgages as “free money.” They’re not. You will owe interest for as long as you carry the loan. That can eat into your home’s value faster than you might expect.
When It Makes Sense
A reverse mortgage may fit your plan if:
- You want to stay in your home and need cash flow.
- You have limited retirement income but significant equity.
- You prefer to delay selling and down‑sizing.
But if your estate plan relies on leaving your home to family, this tool could work against you.
Think Before You Choose
Talk to a financial advisor and get independent legal advice. Compare a reverse mortgage to other options like downsizing, a line of credit, or a standard refinance. Don’t rely on ads. Some promotions make reverse mortgages sound easier or safer than they are. They are loans with real costs.
A reverse mortgage isn’t right for everyone. Use plain numbers. Run scenarios on how long you expect to live in the home, how interest affects your equity, and how much income you need. Make choices based on your finances, not on sales pitches.
