A family preparing for retirement in Phoenix recently sought advice. They had paid off their home long ago, but with the ever-increasing property tax bills, they found it increasingly burdensome to manage on a fixed retirement income. This is a situation many families face when considering cash flow after retirement.

One solution often introduced in such discussions is the reverse mortgage, particularly the Home Equity Conversion Mortgage (HECM) insured by the Federal Housing Administration (FHA). This program allows homeowners aged 62 and older to borrow against the equity in their primary residence. Unlike traditional mortgages, borrowers do not make monthly payments; instead, they can choose to receive funds as a lump sum, monthly payments, or a line of credit. The loan is repaid when the home is sold, the borrower passes away, or the home is no longer used as the primary residence.

It's also important to review the eligibility requirements. To qualify for HECM, the borrower must be at least 62 years old, and the home must be their primary residence. If there is an existing mortgage balance, the funds received from the reverse mortgage will first be used to pay off that balance, and only the remaining amount will be available to the borrower. If the line of credit option is chosen, the unused portion of the credit limit can increase over time, making it a viable option for families that do not need a large sum of money immediately.

To assess how much equity a home in Phoenix actually has, it's necessary to look at market values. According to Zillow data, as of June 30, 2026, the average home value in Phoenix is around $410,222. There is also data indicating that the median sale price during the same period is $460,000, suggesting that families who have lived in their homes for a long time and paid off their loans may have significant equity to leverage.

Returning to the topic of property taxes, the average property tax rate in Maricopa County is approximately 0.59% of the assessed value. While this is lower compared to California or some eastern states, it can still be a burden for families living on a fixed income. It's important to note that receiving a reverse mortgage does not eliminate the obligation to pay property taxes and insurance. In fact, borrowers must pass a financial assessment to ensure they can continue to make these payments.

Arizona is a popular retirement destination, with 19.7% of its population aged 65 and older, which is higher than the national average of 18%. Consequently, there is a steady interest in reverse mortgages in the Phoenix area, but it's not a decision to be made lightly based solely on the benefits.

On the positive side, reverse mortgages can provide cash flow for living expenses or medical costs without monthly repayment obligations, and they are structured as non-recourse loans, meaning that if the home value falls below the loan balance, heirs are not responsible for the difference due to FHA insurance. However, there are important considerations to keep in mind.

• Initial costs, such as origination fees and mortgage insurance premiums (MIP, approximately 2% upfront and 0.5% annually), tend to be higher than traditional mortgages.
• Over time, the equity in the home may decrease, potentially reducing the assets passed on to children.
• If property taxes, insurance, and maintenance costs are not paid, it could lead to default and the risk of losing the home.

To apply for HECM, one must undergo mandatory counseling with a HUD-approved counseling agency. This process allows individuals to evaluate whether this option suits their financial situation and to explore other alternatives. Given that there are scams targeting seniors related to reverse mortgages, it's advisable to discuss the decision with family and thoroughly review the counseling agency's explanations before proceeding.

This article is not investment or legal advice, and it is recommended to consult with a HUD-approved counselor and financial or legal professionals before applying.