Is a Reverse Mortgage Right for You? 5 Real Scenarios That Actually Make Sense

Why are more homeowners asking about this in 2026?

In my 20 years helping homeowners navigate mortgage decisions, I've noticed the same pattern during every market shift: more people start asking, "How do I actually use my home equity to improve my life?"

With 2026's cost of living pressures and shifting retirement realities, I'm seeing something different this time. More clients are looking at reverse mortgages not as a "last resort," but as a strategic planning tool.

You're 62 or older. You own your home. Maybe you're asset rich but cash flow tight. Or you're facing a divorce and your housing payment suddenly feels impossible on one income. Or you just retired early and need to let your investments grow without touching them yet.

Someone mentions a reverse mortgage and you're not sure what to think.

I get it. Reverse mortgages are wildly misunderstood. They're not for everyone. But for the right borrower in the right situation, they solve real problems that other loan types can't.

The challenge? Most people only hear about reverse mortgages in two ways—either as a desperate last resort or as a miracle solution that's too good to be true.

Neither is accurate.

Let me walk you through five real borrower scenarios where a reverse mortgage from New American Funding actually makes strategic sense, and just as importantly, when it doesn't.

Quick Decision Check: Is This Even Worth Exploring?

Before you invest time reading, here's a 30-second self-assessment:

• Are you 62 or older?

• Do you own your home with at least 50% equity?

• Do you plan to stay in your home for at least 5-7 years?

• Do you want to eliminate or reduce monthly housing payments?

• Are you comfortable with a loan balance that grows over time?

If you answered yes to 4 or more, keep reading. If not, a reverse mortgage probably isn't your best fit right now.

Quick Background: What Makes a Reverse Mortgage Different

A reverse mortgage allows homeowners 62 and older to convert home equity into cash without making monthly mortgage payments.

Instead of you paying the lender, the lender pays you.

The loan balance grows over time as interest accrues, and it's typically repaid when you sell the home, move out permanently, or pass away. Your heirs can repay the loan and keep the home, or sell it to settle the debt.

Key differences from traditional mortgages:

• No monthly payment required (though you can make voluntary payments)

• You must live in the home as your primary residence

• You're still responsible for property taxes, insurance, and home maintenance

• The loan balance increases over time instead of decreasing

• Proceeds are generally not taxable income

Before any borrower moves forward, they're required to complete independent counseling with a HUD-approved counselor. This isn't red tape—it's protection to ensure you fully understand the loan before committing.

Now let's look at who this actually helps.

5 Strategic Borrower Profiles

Scenario 1: The Divorcing Borrower

The Reality: Both parties need housing after a divorce. One wants to stay in the family home. But affording the mortgage or buying out the other spouse feels impossible without enough income or significant savings.

How a Reverse Mortgage Helps: If you have at least 50% equity (for example, a $500K home with $250K+ equity), you can refinance into a reverse mortgage to:

• Buy out your ex-spouse's share of the home

• Eliminate the monthly mortgage payment (which could be $2,500-$4,000+)

• Stay in the home without needing to qualify based on traditional income requirements

This provides breathing room during an already stressful transition.

Who This Works For: Homeowners who want to keep the family home, have significant equity (typically 50%+), and don't want or can't afford a traditional mortgage payment of $2,000-$4,000+ monthly on a single income.

Who Should Skip It: Anyone planning to move within 3-5 years, or who doesn't have enough equity to make the numbers work after the buyout and closing costs.

Scenario 2: The Self-Employed Borrower

The Reality: Many self-employed retirees or semi-retirees have cash flow ups and downs. Business income might be seasonal or project-based. Some months you bring in $8K, others just $2K. The pressure of a fixed $2,500 mortgage payment creates stress that doesn't match your actual financial situation.

How a Reverse Mortgage Helps: Because no monthly payment is required, you can manage your cash flow without the fear of missing a payment during slower business cycles. Your home equity becomes your flexibility cushion. You can:

• Skip payments during lean months without penalty, late fees, or collection calls

• Make voluntary payments when business is strong to reduce the loan balance

• Keep working capital in your business instead of sending $2,500+ to the bank every month

Who This Works For: Business owners or freelancers with irregular income ($3K-$10K+ monthly swings) who value flexibility and peace of mind over traditional loan structures.

Who Should Skip It: Anyone who plans to sell the home in the next few years, or who has consistent monthly income and would rather keep building equity with a traditional mortgage.

Scenario 3: The Age in Place Borrower

The Reality: You want to stay in the home you love, but it may need $30K-$80K in updates to remain safe and comfortable as you age. Accessible bathrooms ($15K). Safer stairs ($8K). Better kitchen layout ($25K). Maybe you also want to eliminate your existing $2,200 monthly mortgage payment so you can afford to stay long-term.

How a Reverse Mortgage Helps: You can use the proceeds to:

• Fund home modifications for accessibility ($30K-$80K depending on scope)

• Pay off your current mortgage (eliminating $2,000-$3,500 monthly payments)

• Free up $24K-$42K annually in cash flow for daily living expenses

This is one of the most common and successful uses of reverse mortgages—it's not about lifestyle inflation, it's about sustainability and staying in the right home longer.

Who This Works For: Homeowners who plan to stay in their home for the long haul (7+ years) and want to eliminate $2,000-$4,000 monthly payments while funding necessary improvements.

Who Should Skip It: Anyone thinking about downsizing or moving to assisted living within the next 5 years.

Scenario 4: The Portfolio Borrower

The Reality: Your retirement accounts hold $800K-$2M+. But if you withdraw $50K-$80K annually during a market downturn—especially early in retirement—you risk sequence of returns problems that can permanently reduce your portfolio by 20-30% over your lifetime.

How a Reverse Mortgage Helps: Instead of liquidating stocks or bonds at the wrong time, you use reverse mortgage proceeds to supplement income. This strategy allows:

• Your investment portfolio to stay invested and potentially grow (historical 7-10% annually vs. reverse mortgage rates of 6-7%)

• Tax-free proceeds from the loan (reverse mortgage funds aren't taxable income, potentially saving you 22-35% in federal taxes)

• More flexibility in coordinating withdrawals with your financial advisor

• Protection against having to sell $50K-$100K in investments during 20-30% down markets

Real Numbers: If you need $60K annually and have a $1M portfolio, withdrawing during a 25% market crash means selling $80K worth of shares to get $60K. A reverse mortgage line of credit lets you wait for recovery.

Who This Works For: Retirees with strong investment portfolios ($500K+) who want to optimize withdrawal strategies, minimize taxes (22-37% brackets), and protect against sequence risk.

Who Should Skip It: Anyone without significant retirement savings, or anyone uncomfortable with the idea of a growing loan balance (accruing 6-7% annually) eating into home equity.

Scenario 5: The Cash Strapped Borrower

The Reality: You're on a fixed income. Social Security covers most bills—maybe $2,500-$3,200 monthly—but there's no cushion. A $5,000 medical expense, $12,000 roof repair, or family emergency could derail everything and force you into high-interest credit card debt at 24-29% APR.

How a Reverse Mortgage Helps: You can establish a reverse mortgage line of credit (say, $150K available) that sits unused until you need it. No monthly payment. No pressure to use it. Just peace of mind knowing you have access to funds without needing to requalify or apply again if your situation changes.

Real-World Translation:

• Traditional path: Taking out a $12K personal loan at 18% APR = $300+ monthly payments for 5 years = $18K total cost

• Reverse path: Pull $12K from your line when needed, pay 6.5% interest only on what you use, no monthly payment required = $780 annual interest that accrues into the loan balance

Who This Works For: Homeowners living on $2,500-$4,000 monthly fixed income who want a $50K-$200K emergency reserve but don't want to carry credit card debt at 24-29% or risk losing access to a HELOC if their credit score drops.

Who Should Skip It: Anyone with $30K+ in healthy savings or other liquid emergency reserves who doesn't actually need this safety net.

The Blind Spots Most Lenders Won't Mention

Here's what often gets left out of reverse mortgage conversations:

1. This loan grows over time. The balance increases as interest compounds at 6-7% annually. On a $200K reverse mortgage, that means the balance could grow to $280K after 5 years, $390K after 10 years. That means less equity for you or your heirs down the road.

2. You still pay property taxes, insurance, and maintenance. Expect $6K-$15K annually depending on your location. If you fall behind on those, the loan can go into default—even though you don't have a monthly mortgage payment.

3. Moving out ends the loan. If you move to assisted living or a nursing home for more than 12 consecutive months, the loan becomes due and payable.

4. It's not free money—it has costs. Expect 2-4% in closing costs. On a $400K home, that's $8K-$16K. This includes origination fees ($2,500-$6,000), appraisal ($500-$800), title insurance ($1,500-$3,000), and other standard closing costs. Some of this can be financed into the loan.

5. Heirs have options but not unlimited time. After you pass, heirs typically have 6 months (with possible extensions to 12 months) to decide whether to repay the loan and keep the home or sell it to settle the debt.

6. The loan balance can never exceed the home's value. This is a non-recourse loan, meaning if the balance grows larger than the home's value, you or your heirs are never responsible for the difference. That's built-in protection.

Smart Buyer Strategies: Questions to Ask Yourself

If you're considering a reverse mortgage, here's your decision framework:

• Do I plan to stay in this home for at least 5-7 years?

• Am I comfortable with a growing loan balance (6-7% annual growth)?

• Do I have a realistic plan for property taxes ($3K-$8K annually), insurance ($1K-$3K annually), and maintenance ($2K-$5K annually)?

• Have I talked to my family about this decision and how it affects inheritance?

• Am I doing this proactively (strategic planning) or out of desperation (last resort)?

• Have I compared this to alternatives like downsizing, HELOC, or traditional refinancing?

• Do I understand that closing costs will be $8K-$20K depending on home value?

The best reverse mortgage borrowers use this tool strategically, not reactively. They plan. They compare. They decide based on long-term goals, not short-term pressure.

Reality Check

A reverse mortgage is not a band-aid for poor financial planning. It's not a way to fund a lifestyle you can't afford. And it's not appropriate if you're planning to move soon or don't have sufficient equity.

But here's what I believe: We weren't meant to retire with the stress of a $2,500-$4,000 monthly mortgage payment hanging over us.

And for the right borrower, in the right situation, with the right planning, a reverse mortgage can provide cash flow, flexibility, and security that other loan types simply can't match.

This is about finding the right loan that truly works for your specific situation—not the loan that's easiest to sell or most profitable for the lender.

The key is knowing which scenario you're in and whether the trade-offs make sense for your specific goals.

Final Takeaway

Clarity comes before commitment.

Not all borrowers have the same needs. That's why strategic planning matters more than product features.

If you're exploring whether a reverse mortgage fits your situation, the most important step is getting clear on what problem you're actually trying to solve:

• Eliminating a monthly payment?

• Funding home improvements?

• Creating an emergency reserve?

• Protecting your investment portfolio?

• Managing a divorce settlement?

Once you know that, the right mortgage tool becomes a lot easier to identify.

Let's Talk About Your Situation

Michael Vrlaku
Branch Manager | NMLS #179115
$1 Billion in Funded Loans | 20+ Years Experience
New American Funding | NMLS #6606

Email: [email protected]
Website: https://www.naf.com/mikevrlaku
Mortgage Rate Tracker: https://redbo.com/target-rate-tracker
Podcast: Money in Motion with Mike at moneyinmotionwithmike.com

I help homeowners and retirees think through these decisions clearly and without pressure. If you want to talk through your scenario and see if this actually makes sense for you, reach out.

No obligation. No pressure. Just honest guidance.