Is a Reverse Mortgage a Bad Idea? What South Dakota Homeowners Aged 62+ Need to Know
I'll be honest with you: this is one of the most searched questions about reverse mortgages, and it's a fair one to ask. There's a lot of outdated information and old horror stories floating around. So, let's separate the myths from the facts and talk honestly about when a reverse mortgage makes sense, and when it doesn't.
Where the "Bad Idea" Reputation Comes From
Reverse mortgages earned a rocky reputation decades ago, largely due to weaker consumer protections and some predatory practices in the product's early days. Since then, the Home Equity Conversion Mortgage (HECM) program, which is FHA-insured and regulated by HUD, has changed significantly. Mandatory independent counseling, stronger disclosure requirements, and built-in borrower protections exist specifically because of those early issues.
That said, "it's changed" doesn't mean it's automatically right for everyone. Let's look at both sides. If you want the full rundown of every loan option I offer, including reverse mortgages, you can see all my loan services here.
Common Myths, Addressed
"The bank takes my home." Not true. You retain the title and ownership of your home the entire time, as long as you meet your obligations, live in the home as your primary residence, and stay current on property taxes, insurance, and upkeep.
"My heirs will inherit debt." A HECM is a non-recourse loan. That means neither you nor your heirs will ever owe more than the home is worth when the loan becomes due, even if the loan balance exceeds the home's value at that time.
"I'll get kicked out if I outlive the loan." As long as you continue living in the home as your primary residence and meet your ongoing obligations, you can stay in the home for as long as you live there. There's no set term that forces you out.
When a Reverse Mortgage Genuinely Makes Sense
You're equity-rich but cash-flow limited, and want to free up funds without adding a monthly payment
You want a flexible source of funds, a growing line of credit, as a financial safety net in retirement
You're working with a financial planner to strategically coordinate your home equity with your broader retirement income plan
You want to eliminate an existing mortgage payment to improve monthly cash flow
If any of these sound familiar, my reverse mortgage page walks through exactly how the numbers work. It's worth noting a reverse mortgage isn't the only way to tap your equity. Some homeowners are better served by a cash-out refinance instead, depending on their timeline and goals.
When It Might Not Be the Right Fit
I'd rather tell you this upfront than have you find out later:
You're planning to move within just a few years. Closing costs make a reverse mortgage less advantageous if you won't be in the home long-term.
You can't keep up with taxes, insurance, or upkeep. These remain your responsibility, and falling behind can put the loan in default.
You want to leave the home entirely free and clear to heirs, with no loan to address. A reverse mortgage does reduce the equity remaining in the home over time.
Your immediate needs could be solved another, simpler way. Sometimes a smaller solution fits better than a reverse mortgage.
The Real Answer: It Depends on Your Situation
A reverse mortgage isn't inherently good or bad. It's a financial tool, and like any tool, it's the right fit for some situations and the wrong fit for others. That's exactly why I don't encourage a HECM without a real conversation first. Before we go anywhere near paperwork, I sit down with you to understand your actual goals, run your numbers, and talk through your options honestly, including whether this might not be the right move for you.
If you work with a financial planner, I also make it a point to loop them into the conversation, because a reverse mortgage should support your overall retirement plan, not operate separately from it. If you're still weighing which loan type fits your situation, my guide to mortgage loan programs breaks down every option I offer, side by side.
I've spent over 20 years in mortgage lending, and I'm licensed to help homeowners throughout South Dakota, Minnesota, North Dakota, and Iowa figure out whether this makes sense for them. If you'd like to see the full picture of what I offer beyond reverse mortgages, take a look at my services page.
Not sure if a reverse mortgage is right for your situation? Give me a call or text, or visit jeffbuummortgage.com to schedule a free, no-pressure consultation. Bring your questions and your financial planner, if you have one.
Jeff Buum, NMLS #400290. Fairway Independent Mortgage Corporation NMLS #2289. Reverse mortgage borrowers are required to obtain an eligibility certificate by receiving counseling sessions with a HUD-approved agency. The youngest borrower must be at least 62 years old. Monthly reverse mortgage advances may affect eligibility for some other programs. These materials are not from HUD or FHA and were not approved by HUD or a government agency. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Licensed in South Dakota. Equal Housing Opportunity.
