A retiree came in for a consultation about overall retirement planning. They had a pension, but it wasn't sufficient. The house had been lived in for a long time, and there was almost no mortgage left. The key concern was how to utilize this equity. There were also worries about medical expenses. Monthly living costs were tight. We went through various options one by one.

We started with reverse mortgages. This is a product for homeowners aged 62 and older that allows them to receive funds using their home equity as collateral. There are no monthly repayments. Instead, funds can be received as a lump sum, monthly payments, or a line of credit. Repayment occurs when the home is sold, the owner passes away, or they no longer live in the home. The main product is the HECM, which is insured by the FHA. We first checked the age requirement. This retiree was 68 years old, so they met the criteria.

The average home value in Detroit is $77,245 (Zillow, as of June 2026). This is significantly lower than in other major cities. This means the amount of equity could also be smaller. The average property tax rate in Michigan is about 1.28% (propertytaxrates.org, as of 2026). Even though home prices are low, the tax rate is not. This needs to be calculated first. The lower the home price, the more important this fact becomes. Smaller equity means less financial flexibility.

We also discussed the methods of receiving funds. You can choose from a lump sum, monthly payments, or a line of credit. Mixing these options is also possible. The right method depends on the intended use of the funds. If a large sum is needed for medical expenses, a lump sum might be appropriate. If consistent funds are needed for living expenses, monthly payments might be better. This decision should also be addressed in the consultation. This retiree was concerned about needing a large sum for medical expenses, so we considered a mix of lump sum and line of credit options.

We reviewed the costs involved. There are origination fees, mortgage insurance premiums (MIP, initially around 2% + 0.5% annually), and closing costs. The initial costs are higher than a standard mortgage (CFPB). These costs are often deducted from the loan amount upfront, which means the actual cash received is reduced. If the home equity is not large, these costs can be a relatively bigger burden. This retiree felt the same way, as the low home value made the cost ratio feel more significant. Still, the fact that there were no monthly repayments was attractive.

We also discussed the risks. The loan balance increases over time, which reduces the equity. This means less wealth to pass on to children. Interest and insurance premiums are added to the balance each month. The equity could decrease faster than initially expected. If property taxes, insurance, or maintenance costs cannot be paid, the home could be lost. However, HECM is a non-recourse loan. Even if the home value falls below the loan balance, thanks to FHA insurance, heirs are not required to pay the difference. I made sure to clarify this point to the retiree.

I explained that they must first pass a financial assessment. This assessment checks whether they can continue to pay property taxes and insurance. If they fail this, the application itself can be difficult. This retiree was able to pass this assessment by combining their pension and Social Security income. This is not always the case, as there can be instances of insufficient income. In such cases, loan terms may be adjusted. In Michigan, 19.6% of the population is over 65 years old (WLNS, based on 2024 census data). This places it among the states with a high proportion of elderly residents.

We also discussed alternatives. One option is to downsize to a smaller home. Another option is to use a standard home equity loan. Each has different conditions. I advised them not to decide based solely on reverse mortgages but to compare them side by side.

Finally, we covered the mandatory counseling with a HUD-approved counseling agency. This step cannot be skipped. There are actual scams targeting the elderly involving reverse mortgages. Be wary of places that rush without counseling. This article is not investment or legal advice. Before applying, I recommend reviewing it with a HUD counselor and family members.