Recently, during a consultation, an elderly person asked if taking out a reverse mortgage meant they would ultimately lose their home to the bank. Such misunderstandings are more common than you might think. A reverse mortgage is a product that allows homeowners aged 62 and older to borrow against the equity in their home, but unlike a traditional mortgage, it does not require monthly payments. Instead, funds can be received as a lump sum, monthly payments, or a line of credit. In simpler terms, it does not involve selling the home or transferring ownership; it allows homeowners to access the value they have built up in their property. The loan must be repaid when the home is sold, the owner passes away, or the home is no longer used as the primary residence.

When considering this product in Ann Arbor, the first thing to assess is how much equity has accumulated in the home. According to Zillow, the average home value in Ann Arbor at the end of July 2026 is projected to be $489,157, which is a 3.6 percent increase over the past year. The longer someone has lived in their home, the more equity they can access, so for retirees in areas like Ann Arbor where home values have steadily increased, the amount of funds available through a reverse mortgage can be relatively significant.

However, to maintain this equity, homeowners must be able to afford the annual property taxes. According to Ownwell, the median effective property tax rate in Ann Arbor is 1.58 percent, which is notably higher than Michigan's median of 1.05 percent and the national median of 1.02 percent. The annual median property tax burden is around $7,456. It's important to note that property tax rates can vary by county and school district, so even within Washtenaw County, rates may differ by area. Taking out a reverse mortgage does not eliminate the obligation to pay property taxes, and borrowers must pass a financial assessment to ensure they can continue to pay property taxes and insurance premiums for the loan to be approved.

Cost considerations are also important. The Home Equity Conversion Mortgage (HECM) product, which is insured by the Federal Housing Administration (FHA), has higher initial costs compared to traditional mortgages due to origination fees and mortgage insurance premiums (MIP, initially around 2 percent and approximately 0.5 percent annually), along with closing costs. However, it is a non-recourse loan, meaning that if the home value falls below the loan balance later, heirs are not required to pay the difference thanks to FHA insurance.

The actual amount that can be borrowed is determined by three factors: age, current interest rates, and home value. In simple terms, the older you are, the lower the interest rates, and the higher the home value, the more you can borrow. HECM loans are limited to the loan limits set annually by HUD, and if there is an existing mortgage balance, that must be paid off first with the funds received from the reverse mortgage. Therefore, in homes like those in Ann Arbor where the homeowner has lived for a long time and has little to no existing mortgage, the amount of cash available can be larger.

Of course, reverse mortgages are not the only option. A traditional home equity line of credit (HELOC) has lower initial costs but requires monthly repayments, while downsizing can provide a lump sum of cash but comes with the burden of leaving a long-time neighborhood and neighbors. It is advisable to consider these three options in light of personal health, relationships with children, and future living plans.

This is not a product to decide on based solely on its advantages. Over time, the equity left in the home decreases, which means there may be less to pass on to children, and failing to continue paying property taxes or insurance premiums can lead to default and the risk of losing the home. Michigan is projected to have a population of 19.6 percent aged 65 and older by 2024, which is higher than the national average of 18 percent, indicating that many households in this area are planning for retirement assets.

Before applying for a HECM, it is mandatory to undergo counseling from a HUD-approved counseling agency. There have been actual cases of scams targeting seniors related to reverse mortgages, so it is advisable to have thorough discussions with a counselor and consult with family before making a decision. This article does not constitute investment or legal advice, and it is recommended to seek professional consultation before entering into any contracts.