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What are Common Uses for a Reverse Mortgage?

A reverse mortgage is a mortgage loan that you secure using your residential property, allowing you to access your property's unencumbered value(equity). Reverse mortgages usually don’t require monthly payments and are typically promoted to older residential property owners. Instead of making payments, the cash flow is reversed, and you receive either monthly payments, a lump sum, or a line of credit from the bank.

The popularity of reverse mortgages among seniors has been increasing recently. A reverse mortgage, when used correctly, can be an effective financial planning tool. Below is an overview of the common uses of reverse mortgages.

Supplement Your Retirement Income

If you are a retired homeowner, a reverse mortgage can help you gain extra income without needing to budget for a home equity loan. Traditional home equity loans require monthly payments. A reverse mortgage, on the other hand, requires no expense out of your pocket.

This financial model makes reverse mortgages a great tool to secure additional finances during your retirement and put extra income into your budget each month. You can use this additional income to pay off medical bills, supplement social security, travel, or finance any ventures you wish to pursue.

Cover Medical Expenses

Many citizens face financial challenges paying medical expenses, even with the recent healthcare reforms. From prescription drugs to unexpected surgeries, government and insurance benefits are often not enough to fully cover the cost of quality healthcare. For senior citizens, this can be particularly challenging.

If you need to access funds to cover medical expenses, a reverse mortgage is a viable solution. If you have substantial equity in your home and don't expect to move into a nursing home soon, a line of credit, lump sum, or monthly payment from a reverse mortgage can help you cover your medical expenses.

One thing to note is that you need to keep your physical abilities in mind before using a reverse mortgage for this purpose. You will need to continue maintaining your home. If the nursing home care or chronic illness is a possibility soon, you may have to rethink taking out a reverse mortgage.

Disabled elder woman on wheelchair with nurse

Finance Home Improvements

You can use a reverse mortgage to lock in your home equity by making improvements, including renovations and repairs. Many people seek to stay in their homes for as long as possible. As such, the property has to be fit for the purpose.

Taking out a reverse mortgage for home improvements can help you future-proof your home by protecting or improving the value of the property as well as improving your overall wellbeing.

The longer you delay home repairs, you increase your risk of permanent home damage, a decrease in value, and a reduction in quality of retirement. A reverse mortgage may be a great option if you are ineligible for a personal loan due to income and age.

Reverse Mortgage for ElderCare

You may be in a situation whereby you don’t have sufficient savings or income to cater for personal care, long-term care insurance, or home modifications to support aging in place. This may often be the case for many senior citizens. However, you do have financing options tied up in homeownership.

A Home Equity Conversion Mortgage (HECM) may be a good option if this is the case. For instance, if you are fairly healthy and don't need immediate care, you can live independently in your home for a while. You can use your proceeds from a reverse mortgage to purchase long-term care insurance or modify your home.

Doing so makes your house more accessible and safer, allowing you to age at home indefinitely. A reverse mortgage for this use case is also viable for married seniors with one partner in need of care.

Raise Funds to Purchase a Second Home

One of the more unusual uses of a reverse mortgage is purchasing a second home entirely. Since there are no restrictions on how you use the funds from a reverse mortgage, you can use the proceeds in the form of a lump sum as a down payment for a second home.

One use case of this option is if you seek to downsize to a smaller home. You can sell your current home, use a percentage of your equity as a down payment, and obtain a reverse mortgage on the smaller home.

Senior couple walking on the beach in fall season

Pay Off Existing Conventional Mortgage

If you are tired of being cash tied and house rich, a reverse mortgage provides an option to pay off an existing home loan and eliminate the need to make the conventional monthly mortgage payments. You own your home outright with a traditional mortgage, but your equity is still tied to the house.

In other words, your equity is not liquid. With a reverse mortgage, you can take out a loan against your home's equity as a monthly payment that you can then use to pay off an existing mortgage.


Other notable uses for a reverse mortgage include consolidating debt, financial and estate tax plans, purchasing life insurance, forgoing using other retirement income sources, and creating an emergency fund. As with any major financial tool, you must weigh the benefits and risks of a reverse mortgage for any of the use cases details herein. Consulting a financial advisor is advisable to analyze your financial options to determine if a reverse mortgage is appropriate for you.

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