Should I use a reverse mortgage to consolidate my debts?

Reverse mortgage loans are sometimes marketed as a way to use your home’s equity to pay down your debts. However, using your home’s equity – the amount your property is worth minus the amount of your existing mortgage – to pay-off your debt, replaces one kind of debt for another riskier and perhaps more expensive debt. For instance, if you are unable to fulfill the ongoing obligations of a reverse mortgage loan by paying your property taxes and homeowner’s insurance, you may lose your home to foreclosure.

What to know about consolidating debt with a reverse mortgage

A reverse mortgage is not free money, but a loan that will need to be repaid. While you don’t make monthly payments, the interest and fees are added to the loan balance each month, so the balance you owe increases each month. The loan must be repaid when you die or you and your surviving spouse no longer live in the home.

If you use a reverse mortgage loan to consolidate your debt, the equity you have in your home declines, meaning that it may not be available when you’re older and more likely to have less income and higher healthcare bills. Ultimately, it could end up costing you more than if you found other ways to pay your debts.

Find a nonprofit credit or housing counselor to help you make informed financial decisions

If you’re struggling to pay down your debts, a nonprofit credit counselor can help you weigh your financial options and decide on the best steps forward, including establishing a budget.

You can also talk with a HUD-approved housing counseling agency , which can provide more information on reverse mortgage loans and can help you make the best choice based on your financial situation and personal needs.

Note: This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loan.

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