You must be at least 62 years old, own your home, and want to access a portion of your home equity without making monthly mortgage payments. Is a reverse mortgage something you should consider? The answer depends upon your situation. There are pros and cons. As with everything, Flagstone Mortgage believes in discussing what works and what doesn't. Let's jump into the pros and cons.
What Is a Reverse Mortgage?
A reverse mortgage, or Home Equity Conversion Mortgage (HECM), is a government-insured loan for homeowners age 62 or older. Instead of making loan payments, the lender sends you monthly payments. While a conventional mortgage requires you to make payments to your lender, a reverse mortgage uses your equity to make payments.
They work by taking out a loan against the equity you have built up in your home over the years, which you only start to pay off when you move, sell your home, or die. In this case, the loan is paid off from the proceeds of your home's sale or your estate.
In the Houston market, appetite for reverse mortgages has increased, particularly among retirees seeking cash-flow solutions without losing a family home in the Heights or a long-held home in The Woodlands to foreclosure.
This has not always been the case. Before the 2008 financial crisis, reverse mortgages were widely associated with predatory lending practices. Today's product differs due to stricter federal oversight, consumer protections, and other regulatory requirements. These include clear disclosures, counseling, and rigorous financial assessments. For borrowers, this translates into fewer surprises and stronger protections.
The Real Advantages of a Reverse Mortgage
You eliminate the monthly mortgage payment.s
This means that, upon your reverse mortgage closing, you will not make any monthly principal and interest payments to your lender. That can free up meaningful cash flow in retirement: thousands of dollars each year, depending on your situation.
To clarify, you still need to pay your property taxes, homeowners' insurance, and HOA dues; maintain your home; and lenders will verify that you can afford them.
You get flexible access to your home's equity.
You can receive your funds in a lump sum, as monthly payments, as a credit line you draw on as needed, or through a combination of these options. You decide how much of the money you will actually need, whether to pay medical bills, do home repairs, finance college for your grandchildren, or travel the globe in retirement.
This flexibility can be priceless: You don't have your equity tied up at the closing table, and you can access your reverse mortgage line of credit at your leisure.
Your equity is still protected.
The most common one we hear is "Won't I lose my equity?" No, because a reverse mortgage is a non-recourse loan: you'll never owe more than your house is worth. The Federal Housing Administration guarantees this. If the value of your home decreases or interest rates rise, you'll be protected.
With a reverse mortgage, you own your home. When you die, your heirs inherit your home and can either pay off the reverse mortgage or sell it and keep any remaining money after paying off the loan.
You stay in your home.
You don't have to move or downsize to your family's house, as long as you keep the house up, pay taxes and insurance, and continue to live there. Many of our clients prefer this because they want to remain in the home they know and love.
The Honest Trade-Offs
Your loan balance grows over time.
Reverse mortgages don't amortize the way customary mortgages do. Instead, interest and fees are allowed to accrue and capitalize, meaning the loan balance will grow larger and your equity will be smaller for your heirs in the years ahead. You may want to consider how important it is for your children or grandchildren to leave home.
This will be especially useful if you plan to remain in the home for decades, as the reverse mortgage grows the longer you have it. We always recommend discussing this with your family and, if applicable, your financial advisor.
You still own all the responsibilities.
Regardless of whether you have a mortgage, homeownership costs money, including property taxes, insurance, HOA fees, utilities, upkeep, and repairs. Failure to maintain these obligations may result in foreclosure or the lender demanding payment.
This is why lenders need to review your finances: to ensure you can continue making these payments.
Government benefits may be affected.
If you are getting other means-tested benefits such as Medicaid or Supplemental Security Income, the income provided by a reverse mortgage disbursement counts toward your income limits. It may not be very easy and is definitely something to discuss with a benefits counselor or financial adviser.
The underlying Medicare program is not affected, but need-based programs can be negatively affected.
Mandatory counseling is required.
You must complete HUD-approved housing counseling before closing, though it's more than a rubber stamp and an education about what you're signing up for. And while some borrowers may see this as an inconvenience, we see it as protection: the counselor will explain every term, every risk, and every alternative. You can ask questions then and back out if it doesn't seem right.
It may be superfluous, but it is there for a reason.
Who Should Consider a Reverse Mortgage?
You're retiring or semi-retired. If you don't have enough income from Social Security and qualifying retirement accounts, a reverse mortgage can provide the needed funding rather than cashing out during a down market.
You plan on living in your home for a long time. If you're only going to be there a couple of years, the cost doesn't work. But if this is your forever home, the math changes.
You have substantial home equity. The more equity you have, the more money you can borrow. If you have a significant remaining mortgage balance, you generally won't receive the reverse mortgage proceeds until the balance is paid off, and you may use part or all of them.
You need flexibility. This loan lets you borrow a substantial amount to cover medical bills or a smaller amount for monthly expenses, while keeping the credit line open.
Your homework is done. Families that sit down together, talk it out, and work with advisors who understand the whole picture will make the best decisions.
Why Flagstone Is Different on Reverse Mortgages
Then, if you decide to get a reverse mortgage, find a lender who is willing to tell you the good and the bad.
We do this because we've been in the Houston market for several years, are committed to building long-lasting relationships, and won't oversell the product or its trade-offs. When you meet with one of our loan officers, you'll assess whether this makes sense for you.
We can help you decide whether to get a reverse mortgage or refinance for cash. Or, should one consider a HELOC or a home equity loan? We'll help you calculate the long-term effects so you can make your decisions based on your individual facts and situation rather than a computer algorithm.
If a reverse mortgage isn't right for you, we'll also tell you that.
Ready to Explore Your Options?
Let's talk if someone aged 62 or older owns a home in Houston, The Woodlands, Katy, Sugar Land, Pearland, or anywhere else in the Texas metro area, and wants to determine whether a reverse mortgage would be right for them.
Get Pre-Qualified Today or Speak With a Loan Officer at 713-458-3232.
We'll also explore the real-world benefits and costs to determine whether it's right for you and your retirement goals—just an honest conversation.
Important Disclosures
Borrowers must be at least 62 years old, occupy the mortgaged property as their primary residence, and maintain payments of property taxes, hazard insurance, and maintenance costs. The loan balance increases over time as interest accrues. The balance is typically paid off when it reaches the term's limit (in time) when the mortgagor sells, moves away, or dies. Your surviving spouse may be able to remain in the home under certain circumstances. Counseling is required before the loan closing.
Reverse mortgage income may reduce eligibility for needs-based government benefits such as Medicaid, Supplemental Security Income, and Extra Help. Consult with a financial advisor, tax professional, or benefits counselor for assistance.
Flagstone Mortgage is based in Houston and is a reverse mortgage, jumbo, conventional, and non-QM mortgage broker, with over 4,000 loans originated and a total volume of $1.2 billion. Flagstone is rated 4.9 stars by customer reviews. Our team members have 85 years of combined experience in the mortgage industry.