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If you’ve read articles or watched consumer advocacy segments on reverse mortgages, you’ve probably heard this claim, “Reverse mortgages eat away your home equity.”
It sounds scary, doesn’t it? Like some financial termite slowly chewing through the very foundation of your wealth. But here’s the thing that narrative is very misleading.
Headlines love drama. So, when journalists say things like:
- “the debt increases in the same measure that the home equity decreases.”
- “it eats into a homeowner’s most profitable asset, leaving heirs with nothing.”
- “a mortgage that eventually eats your entire house…”
—they paint only one side of the picture.
Yes, the loan balance on a reverse mortgage will grow over time if the borrower chooses to NOT make voluntary payments. But whether that reduces your equity depends on something just as powerful: Appreciation.
EQUITY IS A MOVING TARGET
Keep in mind, many borrowers access very little of their available funds in the first year—unless paying off a large mortgage. That means homeowners are borrowing less up front, which makes it easier for home appreciation to outpace the loan balance.
Home equity is what your home is worth minus what you owe. So, if your property’s value appreciates faster than the loan balance grows, your equity will increase, not shrink.
VOLUNTARY PAYMENTS = MORE EQUITY
Unlike a traditional mortgage, reverse mortgage borrowers aren’t required to make monthly payments—but they can. More homeowners are choosing to make voluntary payments to manage their balance and grow their equity. With an adjustable-rate reverse mortgage, each payment also boosts the available line of credit dollar-for-dollar.
WHAT IF HOME VALUES DROP?
Even in a down market, a reverse mortgage can be a protective strategy. Your line of credit keeps growing, even if your home’s value doesn’t. And thanks to the product’s non-recourse feature, you’ll never owe more than the home’s value when it’s sold. In other words, your equity can’t drop below zero.
The Bottom Line is home equity can decline with a reverse mortgage—but it doesn’t have to. Appreciation, disbursement strategies, voluntary payments, and smart use of the line of credit can all help homeowners protect or even grow their equity and their net worth.
Consider using REVERSE plus technology to model projected home equity over time and establish a payment strategy and draw strategy that works.