REVERSE Mortgage Is The Worst Thing You Can Do
Reverse mortgages sound like free money—but trust me, they can turn into one of the biggest financial mistakes you’ll ever make if you don’t fully understand what you’re signing up for. In this video, I’m breaking down the hidden risks of reverse mortgages, who actually benefits, and what safer alternatives you can consider instead.
Have you ever thought about tapping into your home’s equity for retirement—or know someone who has? Let me know in the comments, because this is something that affects a lot more people than you’d think.
Point #1: What a Reverse Mortgage Actually Is
I have met with lots of clients who have a Reverse Mortgage and I am usually meeting them after they had the mortgage for years so I see the downside when the homeowner lost of all of their equity. These are always sold to the borrower as a great way to stay in their home. What I find is most of the time the clients don’t fully understand how the loan actually works and what it really means long term.
A reverse mortgage allows the homeowner to borrow against the equity they’ve built up in their home. And unlike a traditional loan, there are no monthly mortgage payments. Instead, the balance grows over time and those payments that aren’t being made are added to the loan balance.
On paper, it sounds incredibly simple: the lender gets paid back when the homeowner moves out and sells the home or passes away. I completely understand why so many seniors are drawn to it. At least one of the borrowers must be age 62 or older. After all, most people want to stay in their home as long as possible and avoid monthly expenses.
But here’s where it gets tricky and where I’ve seen families get blindsided. The way the loan grows over time, combined with interest and fees, often means that what starts out as a small loan can turn into a massive balance years later.
My client, Jan and her husband had taken out a reverse mortgage 6 years ago. They were both in their 80’s and retired. They paid off their current mortgage which had a small loan balance of $150,000 and refinanced into a reverse mortgage. At the time it seemed great because they really couldn’t afford to pay the mortgage anymore. They had been hit with medical bills, so this seemed like a great way to financially stay in the home and not have a mortgage payment. The problem is now her husband had passed away, and she is looking to move into assisted living, but after 6 years of the monthly $1,500 payment added over $100,000 so instead of owing $150,000 she owed $258,000. They live in a small townhome that was worth around $300,000. She ended up with around $30,000 proceeds from the sale of the home and that was all the money she had. It really limited her options for assisted living and put her in a horrible situation because now she didn’t have her husband’s social security income either. She was devastated and really had no idea what her situation was until I met with her and had her pull out the mortgage statement to show her the current balance.
I see it all of the time, families who were shocked to learn just how much equity had been eaten up by the time they were ready to sell, move into assisted living, or handle a parent’s estate.
Point #2: The Hidden Risks Nobody Talks About
One thing I always try to be upfront about with clients is this: a reverse mortgage isn’t free money. You’re actually giving up your equity little by little, every single month. The reality is that the balance grows much faster than most people expect. That means the equity you spent decades building can disappear surprisingly quickly and leave you with little to nothing when you need it the most. The horrible part is my clients who take out these loans are the clients who don’t have a lot of other assets. They can’t afford their house payment or monthly bills, so they use the equity from their home! These loans are pitched as a great option to keep the home.
And then there’s the part nobody really warns you about, the impact on your heirs. My client, Kathy reached out to me several years ago, her dad had passed away, and the family needed to sell his home. They had no idea that there was a reverse mortgage on the home. They knew that the dad had taken out a loan 10 years before paying off some debt. We searched his cabinets together to find the mortgage statement. The loan balance was more than what the home was worth. The kids were devastated. Instead of being left with an inheritance they were stuck with bills, and they had to figure out how to pay for his funeral and other costs while grieving their father. I’ve helped many families settle estates where the parents had taken out a reverse mortgage. It is heartbreaking for families who assume that the home is part of their legacy.
Another major issue is the cost. Reverse mortgages usually come with higher fees and interest rates than a traditional loan. And because the interest compounds, the amount owed can grow incredibly fast. I’ve seen statements where the balance increased by tens of thousands of dollars in just a few years. Homeowners are often shocked when they realize how much equity is being consumed by interest alone.
At the end of the day, you’re essentially eating away at your biggest asset and many times your only asset, the home you worked so hard and for so long to pay off. And that’s why I feel so strongly about educating people on the true long-term risks before making a decision like this.
By the way, if you’re new here, my name is Leslie Carver, and I help people buy, sell, and make smart real estate decisions here in Las Vegas and Henderson, Nevada. I’m here to make sure you understand every side of the real estate conversation—especially the ones most people avoid.
Point #3: Who Reverse Mortgages Actually Help
Here’s the truth I’ve learned after working with many families dealing with reverse mortgages: they are designed to help banks and lenders first, not necessarily the homeowner. The fees, interest structure, and the way the loan grows over time all favor the lender. Homeowners often only see the “no monthly payments” part, but the long-term reality is very different.
When I am talking to lenders, they try to convince me that in some situations reverse mortgages can work. Maybe someone with no heirs, limited income, and absolutely no intention of moving for the rest of their life. I completely disagree. I am going to say it – Reverse mortgages are horrible and you should never get one! There are almost always better options.
One of my clients, Annette, was talking to me about taking out a reverse mortgage. Her and her husband are in their 60’s and they don’t have kids or heirs. So, her thought is to spend it all before she passes away as there is no one to leave it too. The problem is so much can happen between now and the time she passes away. They could live another 30 years. Now they have zero equity or options if something happens. My clients say, “I will never move”, “I plan to die here.” But think about living in the same house for 20 to 30 years. The house is older and things happen. Air conditioning units go out, water heaters go out, the house will need updating. For married clients, once one of them passes away, they lose the spouses’ social security income so even just utilities and other repair expenses that come up can be overwhelming. It is very sad because now you have no equity to complete needed repairs or help move to assisted living.
I have a client, Ron who contacted me last week. He has a reverse mortgage on his home. The market has slowed recently. He is estimating he has approximately $60,000 in equity left but within the next year the loan balance will grow by another $60,000 and he won’t be left with any options. He is trying to refinance the home but without income he really can’t qualify to do so! He either must sell his home now and save the little bit of equity he has or just be stuck!
This just makes me so upset for him. It is a painful reminder that reverse mortgages often create more problems than they solve, especially for families trying to navigate difficult transitions.
Point #4: Smarter Alternatives to Consider
Whenever I meet with homeowners who are thinking about a reverse mortgage, I always walk them through some smarter alternative options that protect their equity instead of letting it slip away. One of the best options is downsizing. I’ve helped many clients sell their larger home, purchase something smaller and easier to maintain, and still walk away with extra cash in their pocket. I have clients right now that just sold their home in Anthem Country Club. They are planning to retire. They owed around $500,0000. We sold their home for $1,250,000. They were able to walk away with over $700,000. The purchased a very nice remodeled condo with views in Terra Bella for $500,000 cash. They don’t have a mortgage, are debt free and were able to put additional money in investments for their retirement. They plan to travel so this home fits their lifestyle better with low maintenance, no mortgage payment, and significantly less stress. For many clients, it’s truly a fresh start.
Another option is a HELOC or a cash-out refinance, depending on your situation. These can give you access to the funds you need without signing away your long-term ownership rights or putting yourself in a position where your equity disappears. Now I say this one with caution. Watch my other video about being careful with HELOC’s. These can also take away equity, and you do not want to use this money frivolously. I have seen clients use this to buy new air conditioners and pay off medical expenses. You must be careful as these start out with a period where the payments are low but once the HELOC changes to the repayment period those monthly payments go up significantly! You want to be careful to make sure you can afford them.
There’s also the sell-and-rent option, which can be surprisingly smart depending on the person’s lifestyle. I’ve had older clients who chose to sell their home at top market value, invest the proceeds, and then rent a home that’s closer to family or easier to maintain. They loved the flexibility without the big financial commitments, no expensive repairs, and no worry about the home declining in condition while they’re trying to age in place.
At the end of the day, the goal should always be to protect your home equity, not trade it away for short-term convenience. I’ve seen too many families lose generational wealth because they weren’t informed about alternatives. With the right strategy and a little planning there are solutions that help you breathe easier today and stay financially secure tomorrow.
