Reverse mortgages: An overlooked retirement planning tool

Sun, Apr 27, 2025, 10:30 AM 5 min read

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If ever you want to clear out a room, start a conversation about reverse mortgages. You'll have the hors d'oeuvres and then some to yourself.

But folks shouldn't shy away from talking about a tool that, in the right circumstances, could be used to improve their financial security in retirement.

So said Don Graves, founder of the Housing Wealth Institute, in a recent Decoding Retirement podcast (see video above or listen below). "It's not spooky," he said. “It's not dangerous. ... It's just a mortgage."

According to Graves, a reverse mortgage, and specifically the Home Equity Conversion Mortgage (HECM), is a federally insured loan for retirees ages 62 and up that allows them to convert a portion of their home's value into tax-free dollars without giving up ownership or making monthly mortgage payments.

"It's just a home equity loan for those aged 62 or older that gives them access to dollars without the burden of making a mandatory monthly principal and interest payment," he said.

Read more: What are the pros and cons of a reverse mortgage?

Reverse mortgages have a long history. Originating in 1961, they gained US federal government backing in 1988 through the HECM program. Internationally, these financial products are marketed under more approachable terminology. In the United Kingdom, they're commonly known as "lifetime mortgages" or "equity release" products, terms that more transparently describe their function of converting home equity into accessible funds during retirement while allowing homeowners to remain in their residences.

According to Graves, about 98% of reverse mortgages in the US are HECMs, which are insured by the Federal Housing Administration under the US Department of Housing and Urban Development.

And these federally backed loans provide important consumer protections and standardized terms that have helped establish reverse mortgages as a legitimate financial planning tool for qualifying homeowners.

To be sure, reverse mortgages aren't for everyone.

Graves said that of the 16,000 people he's talked to over the past 26 years in the business, only 3,000 reverse mortgages went forward. The resource may not make sense for those who don't plan to live in their home long-term, don't have a strategy or need for the funds, and don't need additional income sources.