Is a Reverse Mortgage a Good Idea? Five Tests to Decide

Is a reverse mortgage a good idea? For a homeowner 62 or older who plans to stay in the home for years, can comfortably keep paying property taxes, insurance and upkeep, and has a specific job for the money, it often is. For someone likely to move within a few years, already stretched by the costs of the house, or relying on the home to pass to heirs with its full equity, it usually is not. The answer comes from five tests, not from a general opinion about reverse mortgages.

I get this question more than any other, usually in the first five minutes of a conversation and often from an adult son or daughter on speakerphone. It is the right question. It is also one that no website, including this one, can answer for you in the abstract, because a reverse mortgage that is a smart move for one Bend household is an expensive mistake for the house next door.

What I can give you is the framework I use. The reverse mortgage pros and cons page lists the trade-offs, and the downside of a reverse mortgage covers the costs head on. This page is different. It turns those trade-offs into five tests you can run on your own situation, a scorecard to keep the answers in one place, and three Bend households worked through from start to finish.

This material is not from HUD or FHA and was not approved by HUD or a government agency. A reverse mortgage is a loan that must be repaid, not a government benefit. Figures on this page are illustrations based on HUD's published factors, not a quote or a commitment to lend.

Is a Reverse Mortgage a Good Idea? The Direct Answer

A reverse mortgage, most often a HECM (the FHA-insured Home Equity Conversion Mortgage), lets a homeowner 62 or older borrow against the home without a required monthly principal and interest payment. You keep the title. The balance grows, and it is repaid when the last borrower sells, moves out for good or passes away. Because a HECM is non-recourse, neither you nor your heirs will ever owe more than the home is worth when the loan is repaid.

Whether that trade is worth it depends on five questions:

1. Time: will you stay in the home long enough to justify the upfront cost?
2. Carrying costs: can you keep paying taxes, insurance and upkeep without a strain?
3. The job: is there a specific need, and does the amount you qualify for actually meet it?
4. Household: who else lives in the home, and what do your heirs expect from it?
5. Alternatives: is there a cheaper or simpler tool that does the same job?

If you pass all five, a reverse mortgage is probably a good idea worth pricing out. If you fail one, it is probably not, or not yet. The sections below explain each test and what passing looks like.

Test 1: How Long Will You Stay in the Home?

A reverse mortgage front-loads its cost. On a Bend home appraised at $750,000, the upfront mortgage insurance premium is 2 percent of the value, or $15,000. HUD caps the origination fee at $6,000 under 24 CFR 206.31, and this home hits the cap. Add roughly $4,000 for counseling, appraisal, title and recording, and the loan starts with about $25,000 of costs, usually financed into the balance.

What matters is how many years that cost is spread over:

• 3 years in the home: about $8,300 a year.
• 7 years: about $3,600 a year.
• 15 years: about $1,700 a year.

On top of that, interest and an annual mortgage insurance premium of 0.50 percent of the balance accrue every month. As an illustration only, a balance growing at a combined 6.5 percent roughly doubles in 11 years. That growth is the real long-run cost of the loan, and it is the part your heirs will notice.

Passing looks like: you expect to live in this home for many years, and a move to assisted living, a smaller place or a relative's home is not already on the calendar. If you think you will move within three to five years, then when you ask "is a reverse mortgage a good idea?", the answer is usually not yet. The better question is whether to sell now, or whether to use a HECM for Purchase on the next home instead.

Test 2: Can You Carry the Home Without a Mortgage Payment?

A reverse mortgage removes the principal and interest payment. It does not remove the house. Under 24 CFR 206.27(c), the loan can become due and payable if you do not pay property charges or keep up the other obligations of the mortgage. Those obligations are property taxes, homeowners insurance (and flood insurance where required), HOA dues, reasonable maintenance, and living in the home as your principal residence.

HUD checks this before approval. The financial assessment in 24 CFR 206.37 has the lender review your credit history, cash flow and residual income to decide whether the loan is "a sustainable solution" for you. If the numbers are thin, the loan can still work with a life expectancy set-aside, which reserves part of the principal limit to pay taxes and insurance for you. The reverse mortgage requirements page explains when a set-aside is required.

Passing looks like: with the mortgage payment gone, your income comfortably covers the tax bill, the insurance renewal and a normal year of repairs. If the property taxes and insurance are themselves the strain, a reverse mortgage treats the wrong problem. Is a reverse mortgage a good idea in that case? Rarely, and the honest conversation may be about the size of the house.

Test 3: Does the Reverse Mortgage Actually Do the Job?

People who are happy with a reverse mortgage years later almost always had a specific job for it. The common ones I see in Central Oregon:

• Retire an existing mortgage payment. The full mechanics are in can you pay off your mortgage with a reverse mortgage.
• Hold a standby line of credit for bad market years, health costs or a new roof, so investments are not sold at the wrong time. See the standby reverse mortgage strategy.
• Add monthly income through tenure or term payments. The home equity retirement income guide covers the payment options.
• Buy the next home without a monthly payment, using a HECM for Purchase.

Then check whether the amount actually meets that need. Your principal limit is set by the age of the youngest borrower or eligible non-borrowing spouse, the expected interest rate and the home's value up to the 2026 FHA limit of $1,249,125. At a 6.0 percent expected rate, HUD's principal limit factors on a $750,000 Bend home work out like this:

Subtract about $25,000 of closing costs and any existing mortgage payoff, and what is left is what the loan can do for you. The guide to how much you can borrow covers the full table.

Passing looks like: you can name the job in one sentence, and the numbers cover it with room to spare. A loan that just barely pays off an old mortgage and leaves nothing for next year's repairs can create the problem it was meant to solve. Is a reverse mortgage a good idea without a clear job? Usually not.

Test 4: Who Else Lives In, or Inherits, the Home?

A reverse mortgage is a household decision, and three situations change the answer.

A spouse under 62. A younger spouse can be named as an Eligible Non-Borrowing Spouse at closing. Under 24 CFR 206.55, if the borrowing spouse dies first, the loan's due and payable status is deferred for as long as the surviving spouse keeps living in the home and meeting the loan's obligations. Two catches: the spouse must be disclosed and named in the loan documents at origination, and under 206.27(b)(1) no further money can be drawn during that deferral period. The principal limit is also calculated on the younger spouse's age, so it is smaller. The protection is real, but the surviving spouse needs an income plan that does not depend on the line of credit.

Someone else living in the home. An adult child or a caregiver living with you is not a borrower. When the last borrower (or eligible non-borrowing spouse) passes away or leaves, the loan becomes due, and 206.27(c)(2)(ii) treats more than 12 consecutive months away for physical or mental illness as a move out. Plan for where that person will live.

Heirs who want the house itself. Heirs are never personally liable for the loan. If they want to keep the home, HUD rules in 24 CFR 206.125 let them satisfy the loan for the lesser of the full balance or 95 percent of the appraised value. That protects them in a falling market. It does not leave them the equity the loan used. If passing the home down debt-free is the top priority, a reverse mortgage works against that goal, and the family should hear it before closing, not after. The guide for adult children is written for that conversation.

Passing looks like: everyone who lives in the home, and everyone who expects to inherit it, understands what happens when the borrower is gone, and is on board. Is a reverse mortgage a good idea if they are not? Not until they are.

Test 5: Is There a Cheaper Tool for the Same Job?

A reverse mortgage is one of several ways to use home equity. Before choosing it, check the others against the specific job from Test 3.

• Downsizing. Selling and buying a smaller home frees equity with no loan at all. It costs commissions and moving, and it means leaving the house.
• A HELOC or home equity loan. Often cheaper to open, but it requires monthly payments and income to qualify, and the lender can freeze or reduce a line. The reverse mortgage vs HELOC comparison shows where each wins.
• Keeping a low-rate first mortgage. If you have a small balance, a low fixed rate and a few years left, paying it off normally may cost less than refinancing into any new loan.
• Oregon's senior property tax deferral. For eligible Oregon homeowners, the state's Senior and Disabled Property Tax Deferral program pays the property tax and records a lien. Here is the catch that almost nobody mentions: under ORS 311.700(2), a home pledged as security for a reverse mortgage is not eligible for the program (with narrow exceptions for older accounts), and a HECM's own terms bar a tax deferral lien that is not subordinate to it under 24 CFR 206.27(b)(3). It is one or the other. If property taxes are your only problem, the deferral program may be the lighter tool.

Passing looks like: you compared the alternatives for your specific need, and the reverse mortgage came out ahead, usually because it combines no required payment, a line that cannot be frozen for market reasons, and the non-recourse feature.

Is a Reverse Mortgage a Good Idea for You? The Scorecard

Here are the five tests side by side. Most people land clearly in one column on four of them. The fifth is usually the one worth talking through.

If you are still asking "is a reverse mortgage a good idea for me?" after filling it in, the column with more entries is your working answer. One test does not appear in the table because it applies to everyone: you should feel no pressure. A reverse mortgage that is a good idea will still be one after a week of thinking, a HUD counseling session and a family dinner.

Is a Reverse Mortgage a Good Idea in Bend? Three Households

Here is how the five tests play out for three households I see versions of every month. Each owns a Bend home appraised at $750,000. The names are left out; the situations are composites, not clients.

Household A: a couple, the younger spouse 70, with a $150,000 mortgage. They pay $1,400 a month in principal and interest and plan to stay put. Time: pass. Carrying costs: comfortable once the payment is gone. The job: retiring the mortgage, and at a $311,250 principal limit the payoff and costs fit with more than $130,000 left for a line of credit. Household: both are borrowers, and their two children were on the planning call. Alternatives: a HELOC would keep a payment in place, and downsizing is not what they want. Is a reverse mortgage a good idea here? Likely yes, and this is the kind of case it was designed for.

Household B: a single homeowner, 66, owns the home free and clear. The tax bill and insurance renewal are hard on a fixed income, and a move closer to family in two or three years is a real possibility. Time: fail. Carrying costs: this is the actual problem, and a reverse mortgage does not remove it. Alternatives: Oregon's tax deferral program, if eligible, may address the taxes directly, and selling or a HECM for Purchase on the next home can wait until the move. Is a reverse mortgage a good idea here? Probably not, at least not right now.

Household C: a borrower, 78, married to a spouse who is 60. They want a standby line of credit and plan to stay. Time and carrying costs: pass. The job: the principal limit is calculated on the 60-year-old spouse's age, so it is noticeably smaller than it would be at 78. Household: the younger spouse can be named as an Eligible Non-Borrowing Spouse and stay in the home if widowed, but could not draw on the line during that deferral period. Is a reverse mortgage a good idea here? It can be, if the plan covers the surviving spouse's income without the line. Some couples in this spot wait until the younger spouse turns 62 so both can be borrowers.

Is a Reverse Mortgage a Good Idea Now, or Later?

Even when the answer is yes, timing matters. Two forces pull in opposite directions.

Waiting raises the principal limit. On the $750,000 home above, the principal limit is $267,750 at 62 and $311,250 at 70, because HUD's factors rise with age. If you need the largest possible amount for a single purpose, such as retiring a large mortgage, waiting can be the difference between a loan that closes and one that does not.

Starting earlier gives a line of credit time to grow. The unused portion of a HECM line of credit grows each month at the same rate the loan balance does. Opened at 62 and left largely untouched, a line can be larger in dollars at 75 than the one you would qualify for by waiting. The line of credit growth page shows how that works and what it does and does not mean.

As a rough rule, the payoff and income jobs tend to favor waiting until the numbers fit, while the standby-line job tends to favor starting earlier. Neither is a reason to hurry. And if a new HELOC or cash-out refinance is on your mind before any of this, talk it over first: HUD's seasoning rule in 24 CFR 206.36 can delay a HECM payoff of a lien opened within the prior 12 months.

How to Decide Without Being Sold

A reverse mortgage has more built-in brakes than almost any other loan. Use them.

1. Run the five tests yourself first, with the scorecard above, before you speak with any lender.
2. Bring the family in early. Adult children, a younger spouse and a financial advisor are all welcome in my conversations, and hearing the same numbers at the same time avoids surprises later.
3. Complete HUD counseling. Under 24 CFR 206.41, every borrower, any non-borrowing spouse and any non-borrowing owner must be counseled by an independent, HUD-approved counselor before the loan moves forward. The counselor does not work for the lender and covers the alternatives. See what to expect in reverse mortgage counseling.
4. Compare lenders. HECM rules are the same everywhere, but margins, fees within HUD's caps and service are not. The guide to choosing a reverse mortgage company covers what to ask.
5. Use the right to cancel. On a reverse mortgage that is not a purchase, you have three business days after closing to change your mind.

If anyone pushes you to skip a step, pairs the loan with an annuity or investment pitch, or describes it as money that never has to be repaid, walk away. The reverse mortgage red flags page lists the patterns to watch for.

Is a Reverse Mortgage a Good Idea in Central Oregon?

Deschutes County's population is 21.8 percent age 65 and older, and Bend's median home value sits in the mid-$700,000s, so many retirees here hold far more wealth in the house than in savings. That is the basic condition under which the answer to "is a reverse mortgage a good idea?" can be yes. It also means the household tests matter: many Bend homes were bought as the family place, and heirs often care about them.

Two local points to keep in mind. First, the Oregon tax deferral trade-off above is real and specific to this state. Second, Central Oregon values have climbed fast, and a HECM counts value only up to $1,249,125. For a home worth well above that, a jumbo or proprietary reverse mortgage may lend more. It is not FHA-insured, its terms differ, and in Oregon some are available from age 55, so compare it side by side with a HECM.

Whether you are in Bend, Redmond, Sisters, Sunriver or La Pine, the process and the tests are the same. The Bend reverse mortgage guide covers the local picture, and how a reverse mortgage works covers the foundation.

Is a Reverse Mortgage a Good Idea? Frequently Asked Questions