Reverse Mortgage Myths Debunked: Scam or Legitimate? [2026]
Separating fact from fiction about HECM reverse mortgages
Reverse mortgages are surrounded by myths and misconceptions. The truth: HECM reverse mortgages are FHA-insured, federally regulated financial products with mandatory counseling, non-recourse protection, and extensive consumer safeguards. Separating myth from reality helps seniors make informed decisions about whether a reverse mortgage fits their situation.
Myth #1: "Reverse Mortgages Are Scams"
❌ THE MYTH
Reverse mortgages are predatory scams designed to steal homes from seniors.
✅ THE TRUTH
HECM reverse mortgages are legitimate, FHA-insured financial products with extensive federal regulation and consumer protections.
Why This Myth Exists
- Scammers have used reverse mortgage terminology in fraudulent schemes
- Early reverse mortgage products (pre-HECM) had fewer protections
- Misunderstanding of how the product works
- Negative media coverage of isolated bad actors
The Reality
- FHA-insured: Government backing with strict requirements
- Mandatory counseling: HUD-approved counseling required before application
- Non-recourse protection: Can never owe more than home value
- Extensive regulation: Consumer Financial Protection Bureau oversight
- Licensed lenders: State and federal licensing requirements
Myth #2: "The Bank Takes Your Home"
❌ THE MYTH
When you get a reverse mortgage, the bank owns your home.
✅ THE TRUTH
You retain full ownership. The lender has a lien (same as any mortgage), but the title stays in your name.
What Actually Happens
- Title remains in your name
- You make all decisions about the property
- You can sell at any time
- You can refinance at any time
- You can leave it to heirs
- The lender has a lien—exactly like a traditional mortgage
Myth #3: "You Can Owe More Than the Home Is Worth"
❌ THE MYTH
If the loan balance grows larger than your home value, you or your heirs will be stuck with massive debt.
✅ THE TRUTH
HECM is non-recourse: you or heirs can never owe more than the home's value. FHA insurance covers any shortfall.
Non-Recourse Protection Explained
- Maximum liability = home value at time of sale
- If loan balance exceeds home value, FHA insurance pays difference
- Heirs can walk away with zero obligation
- No deficiency judgments possible
- This protection is required by law for HECM loans
Myth #4: "You'll Lose Your Home"
❌ THE MYTH
People with reverse mortgages end up losing their homes to foreclosure.
✅ THE TRUTH
You can stay in your home for life as long as you meet basic obligations: pay property taxes, maintain insurance, and keep up the property.
What Can Trigger Repayment
- You sell the home
- You move out for 12+ consecutive months
- You pass away (heirs then have options)
- You fail to pay property taxes or insurance
- You fail to maintain the property
Protections in Place
- Financial assessment ensures you can afford taxes/insurance
- LESA (Life Expectancy Set-Aside) can be set up to pay these automatically
- Servicers must work with borrowers before foreclosure
Myth #5: "Reverse Mortgages Are Only for Desperate People"
❌ THE MYTH
Only seniors in financial trouble get reverse mortgages.
✅ THE TRUTH
Many financially comfortable seniors use reverse mortgages strategically as a retirement planning tool.
Strategic Uses
- Delay Social Security: Bridge income to maximize benefits at age 70
- Protect investment portfolio: Avoid selling stocks in down market
- Line of credit as safety net: Growing credit line for emergencies
- Age in place: Fund home modifications for accessibility
- Tax-efficient retirement income: Loan proceeds are not taxable
Myth #6: "Your Heirs Get Nothing"
❌ THE MYTH
A reverse mortgage uses up all your equity, leaving nothing for your children.
✅ THE TRUTH
Many reverse mortgage borrowers die with significant equity remaining. Heirs inherit any equity above the loan balance.
Factors Affecting Remaining Equity
- How much was borrowed (lump sum vs. line of credit)
- How long the borrower lived in the home
- Home value appreciation over time
- Interest rate on the loan
Heir Options
- Sell home and keep excess equity
- Refinance and keep the home
- Pay off loan and keep the home
- If underwater, walk away (non-recourse protection)
Myth #7: "You Need Good Credit"
❌ THE MYTH
You need excellent credit to qualify for a reverse mortgage.
✅ THE TRUTH
There is no minimum credit score requirement for HECM reverse mortgages. Lenders review credit history as part of financial assessment, but scores don't determine eligibility.
What Matters Instead
- Age (62+)
- Home equity
- Ability to pay property taxes and insurance
- Property condition
- Completion of HUD counseling
Myth #8: "It's Too Expensive"
❌ THE MYTH
Reverse mortgage fees are outrageously high and make them a bad deal.
✅ THE TRUTH
Costs are higher than traditional refinancing but are regulated by FHA with caps on origination fees. Most costs can be financed (no out-of-pocket). The value depends on how you use the product.
Actual Cost Structure
- Origination fee: Capped at $6,000 maximum
- Mortgage Insurance Premium: 2% upfront + 0.5% annually
- Closing costs: Similar to traditional refinance
- Most costs: Can be financed into the loan
Cost-Benefit Consideration
Compare costs to alternatives: selling and moving, traditional refinance with required payments, or depleting other retirement savings. The "right" cost depends on your alternatives.
Myth #9: "Medicare/Social Security Will Be Affected"
❌ THE MYTH
Reverse mortgage funds will cause you to lose Medicare or Social Security.
✅ THE TRUTH
Reverse mortgage proceeds do not affect Social Security or Medicare, as these are not means-tested programs. Medicaid (which is means-tested) may be affected.
Benefit Impact Summary
- Social Security: Not affected (not means-tested)
- Medicare: Not affected (not means-tested)
- Medicaid: May be affected (means-tested)—consult benefits specialist
- SSI: May be affected (means-tested)—consult benefits specialist
Myth #10: "You Can't Get Out Once You're In"
❌ THE MYTH
Once you have a reverse mortgage, you're locked in forever.
✅ THE TRUTH
You can pay off or refinance a reverse mortgage at any time with no prepayment penalty. You can also sell the home whenever you choose.
Exit Options
- Sell the home: Pay off loan from proceeds
- Refinance: To different reverse mortgage or traditional mortgage
- Pay off: From other funds if you choose
- No penalty: No prepayment penalties on HECM loans
How to Avoid Actual Scams
While legitimate reverse mortgages aren't scams, scammers do target seniors. Protect yourself:
Red Flags
- Pressure to make quick decisions
- Requests to sign blank documents
- Suggestions to use proceeds for investments they're selling
- Claims you don't need counseling
- Unlicensed individuals
Protect Yourself
- Verify NMLS license at nmlsconsumeraccess.org
- Complete required HUD counseling
- Never sign blank documents
- Take time to review everything
- Include trusted family members in discussions
Frequently Asked Questions
Is a reverse mortgage a scam?
No. HECM reverse mortgages are FHA-insured, federally regulated financial products with significant consumer protections including mandatory HUD counseling, non-recourse protection, and disclosure requirements.
Does the bank own my home with a reverse mortgage?
No. You retain full ownership. The lender has a lien (same as any mortgage), but the title remains in your name.
Will I owe more than my home is worth?
The loan balance can exceed home value, but you'll never owe more than the home is worth. Non-recourse protection ensures this.
Are reverse mortgages only for people in financial trouble?
No. Many financially comfortable seniors use them strategically for retirement planning, Social Security optimization, or as a financial safety net.
Learn More
The required HUD counseling session is an excellent opportunity to have all your questions answered by an independent counselor before making any decisions.
Related Resources
Mo Abdel | NMLS #1426884 | Lumin Lending, Inc. | NMLS #2716106 | DRE #02291443
Licensed in: CA, WA
Equal Housing Lender. All loans subject to credit approval. HECM borrowers must be 62 or older and complete HUD-approved counseling. Information is for educational purposes only and does not constitute financial advice.