Can I use a reverse mortgage to pay off my credit cards and other debts in retirement?

How does it work?

The reverse mortgage pays off your debts, at closing or from your proceeds. Instead of monthly payments on those debts, interest and fees are added to the reverse mortgage balance, which is repaid when you sell, move out, or pass away.

• HECM (FHA-insured): pays off your current mortgage too, then can pay debts or set up a line of credit.
• Reverse mortgage second: keeps your current first mortgage (and its rate) and pays off other debts.

Who is it a good fit for?

• Retirees whose monthly debt payments squeeze a fixed income
• Homeowners with plenty of equity who plan to stay in the home
• People who want one less bill without selling

What should I know first?

• The balance grows over time, so less equity is left for you or your heirs.
• You must keep paying property taxes, homeowners insurance, and upkeep, and live in the home.
• HECMs have first-year limits on how much you can take, and a review of your finances to make sure taxes and insurance are covered.
• Counseling with a HUD-approved counselor is required before a HECM.
• Reverse mortgage seconds and jumbo reverse mortgages are not FHA-insured HECMs; terms and ages vary by program.

Example scenario (illustrative)

A 70-year-old retired teacher in Pasadena has a 2.75% first mortgage and $28,000 in credit cards and medical bills taking about $900 a month from her pension. A reverse mortgage second pays off the debts, keeps her low-rate first mortgage in place, and frees up that $900 a month. She keeps paying her taxes, insurance, and first mortgage payment.

Our take

For the right retiree, this can change monthly life overnight. I'll show you the cost, how the balance grows, and how it compares with a HELOC or selling, and I encourage you to bring your family into the conversation.