Buying a home, refinancing, or using the equity you've built? These guides explain how the loans work, what they cost, and how to choose, in plain English. No pressure, no jargon you'll need a dictionary for.
Looking for reverse mortgages? Head to Reverse Mortgage Articles and the Reverse Mortgage Guide. For a personalized quote on a purchase or refinance, get a rate quote.
Suze Orman has warned about reverse mortgages for well over a decade, and her tone has grown stronger over time. Around 2009 she called them a viable option for retirees who need more income, and by 2011 she called them a potentially dangerous step to save as a last-resort emergency fund. By 2022 she said she would never advise one. Many of her warnings still make sense, but several of the rules she described in 2011 have changed since then. Here is what she has said, when she said it, and how I'd weigh it.
Dave Ramsey has been against reverse mortgages for years, and his view hasn't changed. Ramsey Solutions calls them "major rip-offs" and "a predatory program designed to take advantage of you." Some of his points are fair: it's a loan, the balance grows, and you can lose the home if you don't pay property taxes and insurance. Other points don't match HUD's rules for the FHA-insured HECM, such as the idea that your family will be stuck paying back more than the home is worth. Here is what he has said, what the rules say, and how to decide for yourself.
An adjustable-rate mortgage starts with a fixed interest rate for a set number of years, then adjusts on a schedule based on a published market index plus a fixed margin. The starting rate is often lower than a 30-year fixed, which can lower your payment in the early years. After the fixed period, your rate and payment can go up or down, within limits called caps. An ARM fits people who are confident they'll sell, refinance, or pay the loan down before the fixed period ends, and who could handle a higher payment if they don't.
A 30-year fixed-rate mortgage spreads your loan over 360 monthly payments, and the interest rate never changes. That makes the principal and interest part of your payment the same from the first month to the last, which is why it's the most common home loan in the country. The tradeoff is that you pay more total interest than you would on a shorter loan, and you build equity more slowly in the early years. It fits buyers who want a smaller steady payment and the most room in their monthly budget.
A 15-year fixed-rate mortgage is paid off in 180 monthly payments, and the interest rate never changes. Because the loan is paid down in half the time of a 30-year, you pay far less interest over the life of the loan and build equity much faster. The tradeoff is a noticeably higher monthly payment. It fits buyers and homeowners with strong, steady income who want the house paid off sooner and can carry the bigger payment comfortably.
Many homeowners use a reverse mortgage to pay for in-home care so they can keep living at home. A line of credit lets you draw money as care needs grow, and monthly payouts can cover a regular caregiver schedule. There are no required monthly mortgage payments, but you must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. The home has to stay your primary residence, and if care later means living in a facility for more than 12 consecutive months, the loan can come due. Plan for that, and for how loan money affects Medicaid or SSI, before you draw.
Waiting from 62 to 70 to claim Social Security can raise your monthly benefit by roughly three quarters, but most people claim early because they need income in between. A reverse mortgage line of credit can fill that gap: you draw from the line instead of collecting Social Security, and your benefit keeps growing in the background. The bridge has real costs, and the CFPB has warned that for many borrowers those costs can outweigh the extra benefit. It works best as a coordinated planning strategy for healthy homeowners who plan to stay put, not as a universal recommendation.
A HECM line of credit and a bank HELOC both let you borrow against your home and pay interest only on what you use. The HELOC usually wins on upfront cost, but it requires monthly payments, it has a set end date, and the bank can freeze or reduce it. The HECM line has no required monthly mortgage payments, it can't be frozen while you meet the loan terms, and the unused part grows over time. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. Generally, a HELOC fits short-term needs for people who can easily make payments, and a HECM fits homeowners 62 and older who plan to stay put.
A fixed-rate HECM gives you one rate for life, but you take all your money as a single lump sum at closing, and interest starts on the whole amount right away. An adjustable-rate HECM gives you choices: a line of credit, monthly payments, a lump sum, or a mix, and you only pay interest on what you draw. The unused part of an adjustable line of credit grows over time. Fixed tends to fit people who need most of the money now, like paying off a large mortgage or buying a home. Adjustable tends to fit almost everyone else.
A standby reverse mortgage is a HECM line of credit opened early in retirement and left mostly unused, so a client can draw from the home instead of selling investments in a down market. Peer-reviewed research in the Journal of Financial Planning, from Sacks and Sacks and from the Texas Tech team of Salter, Pfeiffer, and Evensky, found that coordinating draws this way can improve the odds a portfolio lasts. The unused line grows over time at the note rate plus annual mortgage insurance, and the lender can't freeze it while the borrower meets the loan terms. It isn't for everyone: the home must stay the primary residence, and the borrower must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms.
The TALC, or Total Annual Loan Cost, is a federal disclosure that rolls all of a reverse mortgage's costs into a single average yearly rate. It shows that rate over several time periods and several home value scenarios, so you can see how the cost changes the longer you keep the loan. Short time periods usually look expensive, because the upfront costs are spread over just a few years. Long time periods look much better. That's the clearest proof there is that a reverse mortgage is built for people who plan to stay in their home.
In a divorce after 60, a reverse mortgage may let the spouse who keeps the home pay off the existing mortgage and put money toward buying out the other spouse's equity, with no required monthly mortgage payments. You must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. The spouse who leaves may be able to use a HECM for Purchase to buy their next home the same way, with the same obligations. Whether the numbers work depends on age, home value, rates, the existing mortgage, and how the divorce decree is written, so bring this up before the settlement is final.
A HECM reverse mortgage can usually pay off your existing mortgage or home equity line, but a newer loan may first have to "season." Under HUD's rule, a HECM can pay off a lien only if it was in place more than 12 months before your HECM application, or if it gave you less than $500 in total, whether in cash at closing or in later draws. A HELOC opened more than 12 months ago can be paid off even if you drew on it recently. If your lien doesn't qualify yet, you can wait, pay it off with other documented money before closing, or in some cases have it placed behind the HECM. An existing HECM you're refinancing isn't subject to this rule.
If a fire, flood, hurricane, or earthquake damages your home and you have a reverse mortgage, call your loan servicer first, even before you know what you need. Your loan terms keep going after a disaster: the home must stay your primary residence, and you must continue to pay property taxes and homeowners insurance, maintain the home, and meet the other loan terms. Tell your servicer in writing if you're displaced and plan to return. Insurance checks usually go through your servicer, which releases the money as repairs get done. FEMA, the SBA, and free HUD-approved housing counselors can help fill the gaps.
The FHA-insured reverse mortgage, the HECM, has changed many times since the first one closed in 1989. The biggest shifts came in 2008, when Congress set one national lending limit, and between 2013 and 2017, when HUD limited first-year draws, protected younger spouses, added a financial assessment, and repriced mortgage insurance. Since then, the lending limit has climbed with home prices and adjustable loans moved off LIBOR. If you're reading an older article, check its date, because many of the rules it describes are gone. This page walks through each change, what it meant for borrowers, and the HUD source behind it.
Before any HECM, you meet with an independent, HUD-approved counselor, and during that session the counselor asks you ten questions to check that you understand the loan. Under HUD's counseling protocol, you need to answer at least five of the ten correctly to get your counseling certificate in that first session. If you don't, the counselor holds the certificate and offers another session, a call back, or more time to learn. Below are the questions counselors choose from, with plain-English answers, so nothing in your session catches you off guard.
An adjustable-rate HECM closes with a first and a second note, and a first and a second deed of trust (called a mortgage in some states). The first set secures the lender. The second set is in favor of HUD and secures any payments HUD makes to you if the lender ever can't. Fixed-rate HECMs pay out in one lump sum at closing, so HUD no longer requires the second set on them. The large amount printed on the documents is the most the deed of trust can secure, not what you owe.
