By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | August 17, 2026

Article originally posted in Orange County Register on August 13, 2026

No doubt, the reverse mortgage is often a financial lifeline for struggling seniors.

There are also plenty of instances in which uninformed borrowers unnecessarily take out a reverse mortgage when there are far better alternatives.

On Aug. 5, Bankrate released this study: The refinance ‘Seniority Tax’: How a flawed system and aggressive lenders leave older homeowners overpaying for their mortgage.

The study estimates that seniors could be overpaying an average $52,000 over the life of a 30-year loan, a result, in part, of deeply ingrained industry culture that prioritizes selling loans over what is in people’s best interest.

To be clear, the study didn’t specifically break out reverse mortgages, rather it addressed all mortgages.

I’ve had many conversations with seniors (and reviewed their financials) over the years. Many believed the only option they could qualify for and afford was a reverse mortgage. (Those beliefs were often based on the sales tactics of mortgage loan originators). So, they took that mortgage, when in fact, they could have qualified for better mortgages with lower rates and fees.

Before I go through alternative solutions, let me offer you a quick explanation of what a reverse mortgage is:

A reverse mortgage or a home equity conversion mortgage (HECM) is designed with seniors in mind. It allows those age 62 and older (and in some cases 55 and older) to buy or refinance a property with no future payments. Monthly interest, and in some cases, a mortgage insurance payment is added to the balance each month. This is called negative amortization, in which the loan balance goes up, accounting for interest being charged without a payment being made.

Borrowers are additionally required to pay homeowners insurance and property taxes as they are due. And they must maintain the home.

There is no term on the reverse loan. It must be paid back when the borrower sells, moves out or dies.

There is also a reverse mortgage fixed-rate second lien that works the same way. The borrower must take all the money out at once. You don’t have to give up a low interest rate on a first mortgage either. But you still must make the payments on that first mortgage.

In my opinion, reverse mortgages should be a loan of last resort. Yes, they have their place for the elderly who cannot qualify for other financial instruments. Or, they just can’t keep up with regular mortgage payments, and they have no one to help them make the payments.

Now, let’s get to three reverse mortgage alternatives.

Sometimes a senior’s children are able and willing to financially assist. Effectively, they are either signing for home loans or acting as co-borrowers to the parent(s). Fannie Mae calls this a parent loan. This can be a 30-year fixed rate, meaning monthly payments are due each month. The beauty of the parent loan is you get optimal interest rates. Oftentimes, there is enough tappable equity for the senior to live out his or her life comfortably, including making the house payments.

The interest rate is roughly 6.5%, whereas the reverse mortgage interest rate is 9.5%.

Here’s an example of how it works:

The parents’ property is worth $1.5 million, mortgage free. The parents are 85 years old. They can pull out 75% of the property value or $1,125,000 at 6.5% with a monthly payment of $7,111. Let’s say they live 10 more years. That comes to $853,320 (120 months x $7,111) of payback payments. They still have roughly $271,680 of cash remaining or $27,168 per year and a whole lot of home equity. The heirs ultimately either keep the property and assume the mortgage, sell it, rent it out and/or refinance the mortgage.

One reverse mortgage calculator I used showed a $900,000 maximum cash-out loan amount. With an interest rate of about 9.5% (including FHA mortgage insurance) and with no monthly payments.

The true beneficiaries are the heirs to the estate, usually the elderly owner’s children. They save the estate 3% of interest charges. And they save massive closing costs using a parent loan.

The parent loan might cost about $16,000. The reverse mortgage settlement charges can be around $34,000.

Another financial instrument I like is a negative adjustable home equity line of credit as a second lien named Equity Select.

The beauty of this loan is the borrower doesn’t have to trade out the low interest rate on a first mortgage. And you tap money from the equity line as you need it. You don’t have to take it all out up front like in the reverse second mentioned above.

It’s a 40-year mortgage with a roughly 9.5% interest rate. The borrower has three payment choices: a minimum payment which adds to the loan balance just like a reverse mortgage, an interest-only payment which does not increase or decrease the loan balance for the first 20 years, or the full payment, which would reduce the loan balance.

For example, on a $250,000 line, your minimum payment would be $326. For a standard home equity line of credit, the minimum payment would be $1,562 (assuming a 7.5% interest rate).

You could also consider a regular home equity line of credit. At minimum, the borrower must make interest-only payments. The loan balance cannot increase like the Equity Select can. The interest rate is roughly 2% lower, to boot. You only take money out as you need it.

To summarize, if you can only afford a reverse mortgage, that’s certainly better than being forced to sell your home because you have negative monthly cash flow.

If you can avoid the reverse mortgage by tapping money out another way, you will likely preserve more home equity. That preserved home equity will be a huge asset for you or your heirs.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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