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When many people think of a reverse mortgage, they picture an older homeowner struggling to make ends meet. While that image once reflected a common use case—particularly during the housing crash—that’s no longer typical.
Today’s reverse mortgage applicant is not desperate. They’re strategic. Homeowners are increasingly using the federally insured Home Equity Conversion Mortgage (HECM) as a financial planning tool rather than a last resort. Whether they want to relocate, rebalance their retirement portfolio, or pay for long-term care, the modern reverse mortgage offers creative ways to achieve those goals.
Here are four overlooked ways homeowners are using a reverse mortgage today.
1. HECM FOR PURCHASE
Few realize that the U.S. Department of Housing and Urban Development (HUD) allows those age 62 and older to purchase a new principal residence and obtain a reverse mortgage in a single transaction. This program—called HECM for Purchase—was designed to help older adults:
- Relocate to be near family or a preferred climate,
- Downsize to a home that better fits their physical needs, or
- Upsize to their dream home in retirement.
The benefit? Borrowers can buy the home they want without taking on a monthly principal and interest mortgage payment. The only ongoing responsibilities are to occupy and maintain the home, and to pay property-related charges, like taxes and insurance.
For many, this is a more efficient way to move during retirement and retain more of the cash from the sale of their previous home.
2. DIVORCE SETTLEMENTS
“Silver divorce” (divorce among those age 62 and older) is an increasing reality. When real estate and fixed incomes are part of the equation, it can be challenging to divide assets fairly.
A reverse mortgage can facilitate a spousal buyout, allowing one spouse to stay in the home while the other receives their share of equity. The departing spouse may even use a HECM for Purchase to buy a new home without assuming a new monthly payment.
This strategy allows both individuals to maintain stability and independence after divorce—two key goals for any retiree navigating change.
3. CREATING NON-TAXABLE RETIREMENT CASH FLOW
Reverse mortgage proceeds are not taxed as income. So, by drawing part of their living expenses from home equity instead of taxable retirement accounts, homeowners can reduce their Adjusted Gross Income (AGI), potentially lowering:
- Income tax liability,
- Medicare premium surcharges,
- Taxation of Social Security benefits, and
- Capital gains exposure.
For retirees coordinating with financial planners or CPAs, this flexibility can make the HECM a cornerstone of a comprehensive tax-efficient retirement plan.
4. PAYING FOR HOME CARE
As more Americans choose to age-in-place, the challenge isn’t just finding quality care, but it’s also paying for that care. Home care is often paid out-of-pocket and can quickly deplete savings.
Drawing from a reverse mortgage line-of-credit (LOC) allows homeowners to fund in-home care without selling investments or incurring additional tax burdens. The LOC grows over time, ensuring that more funds are available when care is needed, when costs inevitably increase.
THE BOTTOM LINE
Whether it’s purchasing a new home, supporting financial planning goals, or funding long-term care, today’s reverse mortgage is far more versatile than most realize.
By understanding how the HECM program really works, and the consumer protections built into it, homeowners can make smarter, safer financial decisions that enhance both their lifestyle and peace of mind.