When is a reverse mortgage a bad idea?

1. Could you need long-term care soon?

A reverse mortgage is built for people who plan to age in place. On a HECM, the loan comes due if the last borrower is away from the home for more than 12 months in a row, for example in a care facility. If that's likely in the next few years, the upfront costs may not be worth it. See what happens if a parent moves to assisted living.

Ask yourself: do I plan to stay in this home? You can sell any time, but this program works best for people who stay.

2. Will it actually help you?

The loan has to be a sustainable solution for your whole retirement. Getting rid of a mortgage payment doesn't automatically mean you'll come out ahead if property taxes, insurance, or other bills are still a stretch. That's why HUD's financial assessment reviews your income, credit, and history of paying property charges, and may require a set-aside for future taxes and insurance. I run those numbers before you apply.

3. Does everyone signing fully understand it?

This is a real loan with real terms. If declining health is affecting someone's ability to understand what they're signing, slow down. Independent HUD-approved counseling is required before you apply, and family members are welcome to join. If capacity is a concern, talk with your estate attorney about powers of attorney first.

4. Must the home pass to your heirs free and clear?

Some families want the home to pass on with no loan against it, and that's a real and valid priority. A reverse mortgage uses some of that equity. One middle ground: with a properly drafted living trust, your heirs can still choose to keep the home by refinancing or paying off the loan, sell it and keep what's left, or walk away. See what happens when the borrower dies.

What are the alternatives?

Property tax deferral, downsizing, a HELOC, a home equity loan, a reverse mortgage second, and more. See alternatives to a reverse mortgage.

What if none of these apply?

Then it's worth a serious look, especially if most of your wealth is in your home, you'd like to stop making a mortgage payment, or you want a growing line of credit as a safety net.

Example scenario (illustrative)

An 84-year-old in Denver has early memory loss, and her doctor expects she'll need memory care within a year or two. Her son asks about a reverse mortgage to pay for home care. We talk it through and recommend against it: the loan would likely come due soon after, and selling or a short-term option costs less. A good plan sometimes means saying no.

Our take

I'd rather lose a loan than put someone in the wrong one. A reverse mortgage can be life-changing for the right family, and costly for the wrong one. My best advice: bring your heirs to the table. When everyone understands the plan, there are fewer surprises later.