Recently, I received a call from a customer who was surprised by a news report about reverse mortgage scams and was worried that the product they were considering might also be risky. In fact, there are financial scams targeting the elderly that use reverse mortgages as bait, so these concerns are quite valid. However, it is important to distinguish between the program itself and the scams that exploit it.

A reverse mortgage is a product that allows homeowners aged 62 and older to borrow against the equity in their home. Unlike a traditional mortgage, where payments are made monthly, in a reverse mortgage, funds are received from the lender in a lump sum, monthly payments, or a line of credit. The loan 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 widely used product is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). This distinguishes it from other private loan products as it is the only type of reverse mortgage backed by the federal government.

San Diego is a particularly significant area for this calculation. According to Zillow, as of May 31, 2026, the average home value in San Diego is $1,007,800, which is a 2.3 percent decrease from the previous year. Even with this decline, the value remains above one million dollars, suggesting that long-term homeowners likely have accumulated substantial equity. For those considering retirement living expenses or medical costs, this equity can become a source of cash flow.

Of course, it is not a product to decide on by only looking at the advantages. The initial costs are generally higher than those of a traditional mortgage, including origination fees, mortgage insurance premiums, and closing costs, which can be around 2 percent initially and 0.5 percent annually. Additionally, as the duration of the loan increases, the homeowner's equity decreases, which means that the assets passed on to children may also diminish. The average effective property tax rate in California is about 0.71 percent, which is lower than the national average of 0.91 percent, but property taxes and homeowners insurance must still be paid by the owner after obtaining a reverse mortgage. It is crucial to understand that failing to manage these payments can lead to default and the risk of losing the home.

It is also important to review the eligibility requirements. You must be at least 62 years old, the home must be your primary residence, and if there is an existing mortgage balance, it must be at a level that can be paid off with the reverse mortgage funds. A financial assessment to confirm the ability to continue paying property taxes and insurance is also required, and if concerns arise during this assessment, part of the loan may be set aside for tax and insurance payments. You can choose to receive funds as a lump sum, fixed monthly payments, or a line of credit, with the unused portion of the line of credit gradually increasing over time.

To avoid falling victim to scams, it is good to remember a few things. The formal process requires a consultation with a HUD-approved counseling agency, and they do not require immediate signing or enrollment in specific investment products. If someone contacts you by phone or mail urging you to act quickly or suggesting that you can skip the counseling process, it is wise to be suspicious.

Thanks to the non-recourse structure, if the home value falls below the loan balance, heirs are not required to pay the difference. This is a key distinction between scams and legitimate programs. In California, the percentage of the population aged 65 and older is projected to be 16.5 percent by 2024, and this number is expected to continue to rise, making it beneficial for many families to understand this program accurately.

There is no rush to make a decision. I encourage you to consult thoroughly with a HUD-approved counselor and, if possible, discuss it with family before making a careful judgment. This article is not investment or legal advice, and I recommend consulting a professional before applying.