Reverse Mortgage Strategies for Retirement Planning

By Tom Burchnell
reverse mortgage retirement

Whether you’re knocking on retirement’s door or you’re simply planning ahead, you’ll likely encounter various reverse mortgage strategies during your research. But, what exactly is a reverse mortgage, and how could you use one in your retirement income and financial plan?

In this article, we’ll explore the ins and outs of the reverse mortgage—including eligibility requirements. If you’re unsure if a reverse mortgage is the right call for your finances, we’ll also discuss some alternatives.

What is a Reverse Mortgage?

Reverse mortgages have a few key features:

  • Instead of borrowing a bank’s cash—as with a traditional mortgage—reverse mortgage applicants borrow against their home’s existing equity.
  • Home equity equates to the home’s fair market value minus any outstanding loan balances from a mortgage, second mortgage, or another lien.
  • The loan balance is usually repaid in full once the borrower or their heirs sell the property. Therefore, the risk for lenders is low, enabling them to offer a low-interest rate.
  • Reverse mortgage lenders usually impose specific requirements for applicants that significantly differ from other loan options. 

While requirements vary by lenders, the US Department of Housing and Urban Development (HUD) offers a Home Equity Conversion Mortgage (HECM loan)—a reverse mortgage loan by a different name—and most institutions’ requirements are similar.

Some criteria include:

  • Age – Applicants must be 62 years or older. 
  • Primary residence – Reverse mortgage borrowers must permanently live on the leveraged property.
  • Financial responsibility – Reverse mortgage borrowers must prove that they can afford property upkeep.
  • Proof of insurance – Applicants must show proof of homeowners insurance.
  • Property details – Leveraged properties must be 1-4 units and meet FHA requirements.
  • Sufficient equity – Applicants must own (or be close to owning) the home free and clear.

Is Reverse Mortgage a Good Idea for Retirement?

If a financial institution approves your reverse mortgage loan, you can use the funds any way you wish—thus, many soon-to-be retirees consider reverse mortgage retirement strategies as a way to fund their golden years.

They’re usually attracted by the following features:

  • You’re using your money since you’re liquidating an asset that you already own (or will soon) outright. 
  • You won’t pay income taxes on reverse mortgage funds, since the IRS classifies these as mortgage proceeds.
  • You don’t need to plan for repayment until you move or sell the property. If you’re still in the home when you pass, your heirs will repay the loan using proceeds from your home sale.

Whether you put your reverse mortgage disbursement towards vacationing, purchasing a second home in cash, or supplementing your other retirement savings, it could be a viable part of your retirement financial planning—as long as you can afford the upkeep of the home and are content to stay put. Learn more about the pros and cons of reverse mortgages for retirement to make an informed decision.

How to Use Reverse Mortgage for Retirement

Interested in the prospect of a reverse mortgage? You’ll need to take the following steps:

  1. Talk with your family. Be sure they understand the full implications of your decision. For example, if you live with someone not named on the existing mortgage, they may have to move out when the balance is due. Likewise, you will not be able to leave the property to heirs unless they can repay the loan in full.
  2. Once you’re sure of your decision, apply to a qualified reverse mortgage lender. If you have a high-value home, you may want to research loans from private lenders. As you research, read the fine print. If your lender seems impatient or tries to cross-sell you on other loan products, be wary.
  3. Consider how you want to receive funds. Depending on your lender, you’ll have the option between a lump-sum mortgage payment, a fixed monthly payment, or a line of credit. In some cases, you can mix and match these options.
  4. Prepare to pay any closing costs and fees. You may also be able to roll them into the loan. Just keep in mind that this will further diminish your equity and any potential inheritance you plan to leave.

Once you’ve taken out the loan, consider how you’d like to make use of the additional income or lump sum. You have a few options:

  • Traditional interest-earning accounts
  • A retirement investment account
  • Purchase additional real estate
  • Spousal eldercare
  • General retirement support 

Alternative Options for Retirement Planning

Can you be turned down for a reverse mortgage? It’s likely. Not everyone is eligible for a reverse mortgage. Luckily, there are other alternatives to reverse mortgages, like:

  • A cash advance from a credit card company (but watch out for high interest)
  • A personal loan from a bank or credit union
  • Selling your property and purchasing a less expensive home in cash
  • A sale-leaseback solution

If cash advances, personal loans, or permanently moving out of your home simply aren’t feasible, a sale-leaseback solution may be exactly what your retirement plan is missing.

Convert Your Home Equity into Cash for Retirement with a Sale-Leaseback

While a reverse mortgage might be an excellent choice for retirement, not every homeowner is eligible for or interested in this type of loan.

Luckily, there’s an even better solution than reverse mortgage planning: the sale-leaseback. These solutions help you remain in your home while converting your hard-earned equity into cash for retirement, a child’s higher education, or future property purchase. Through a sale-leaseback, you can convert your home equity to cash and get to lease your home back.

No more nail-biting while you wait for a reverse mortgage, home equity loan, or personal loan approval—through a sale-leaseback program, you can convert your equity without sacrificing your home base. 

Key Takeaways

If you’re looking to plan ahead in terms of your retirement, or if you are currently planning on retiring, a reverse mortgage may be a good choice for you. If you are still unsure after reading this article as to whether reverse mortgage is right for you, consult a financial advisor to learn more about your options.


  1. Forbes. Reverse Mortgages: How They Work and Who They’re Good For.
  2. US Department of Housing and Urban Development. How the HECM Program Works.
  3. IRS. For Senior Taxpayers. 
Reverse Mortgages
Tom Burchnell
Written by Tom Burchnell
Director of Product Marketing

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