Among the cases I reviewed, there was a client who mistakenly believed that receiving a reverse mortgage meant transferring home ownership to the bank. Such misunderstandings are more common than you might think. In reality, ownership remains with the homeowner, and the structure involves borrowing against the equity of the home.

A reverse mortgage is a product that allows homeowners aged 62 and older to borrow against the equity of their own home. Unlike a traditional mortgage, where payments are made monthly, funds can be received in a lump sum, monthly payments, or a line of credit from the lending institution. The principal and interest are repaid when the home is sold, the owner passes away, or the home is no longer used as the primary residence. The most well-known product is the HECM, Home Equity Conversion Mortgage, which is insured by the Federal Housing Administration (FHA) and is the only type of reverse mortgage backed by the federal government. There is often confusion regarding ownership transfer, but the title remains in the owner's name.

Even within Cambridge, circumstances can vary by neighborhood. Areas like Harvard Square, with older homes, tend to maintain high property values, while regions near schools have consistent demand from residents, including Korean families. According to Zillow, the average home value in Cambridge is $1,044,286, which is a 1.5 percent decrease from a year ago. However, other sources report the median price around $1.3 million, which can differ due to variations in average and median values and the timing of assessments. Regardless, Cambridge is among the areas with the highest home prices in Massachusetts, so the equity amounts are significant.

With that, the burden of property taxes must also be considered. The average effective property tax rate in Massachusetts is about 1.12 percent, which is higher than the national average. Cambridge is known to have a high proportion of commercial real estate, leading to relatively lower residential tax rates, but it's advisable to check the exact rates on the city's website or county records for the current year. Even after obtaining a reverse mortgage, these taxes and insurance premiums must continue to be paid.

From the cases I reviewed, the advantages are clear. Homeowners can secure cash flow for living expenses and medical costs without monthly repayment burdens, and HECM operates on a non-recourse basis, meaning that if the home value falls below the loan balance, heirs are not required to pay the difference thanks to FHA insurance. However, there are also clear disadvantages. Over time, the equity in the home decreases, reducing the assets that can be passed on to children, and initial costs such as origination fees and mortgage insurance premiums (MIP) are higher than those of traditional mortgages. MIP is initially around 2 percent and approximately 0.5 percent annually. It's also important to understand that failing to continue paying property taxes and insurance can lead to the risk of default.

By 2025, it is estimated that 17.1 percent of the population in Massachusetts will be aged 65 and older. It's important to discuss this with children or family members in advance. In high-value areas like Cambridge, the size of inherited assets can be significant, so having conversations about how family members will perceive this decision can help reduce potential conflicts later on.

Another common misunderstanding is the belief that heirs must repay the loan to keep the home. In reality, heirs can choose to repay the principal and interest to keep the home, sell the home to settle the loan and take the remaining equity, or simply transfer the home to the lender and settle the loan that way. Regardless of the choice made, the non-recourse structure means that heirs are not required to pay out of pocket if the loan balance exceeds the home value.

Before applying for HECM, it is mandatory to undergo counseling from a HUD-approved counseling agency, and since reverse mortgage scams targeting the elderly do exist, it's advisable to discuss thoroughly with family before making any decisions. This is not investment or legal advice, and consulting with a professional before entering into any contracts is recommended.