A senior I have known for a long time in Nashville recently called me after seeing a news report. It was about a scam related to reverse mortgages, and he was worried about whether he should continue considering a reverse mortgage he was looking into. Such calls increase every time news like this comes out. So today, I will follow this senior's situation from start to finish, explaining how reverse mortgages actually work and what to be cautious about.

This senior has been retired for several years and has fully paid off his home. However, he was looking for ways to utilize his home equity due to the burden of monthly medical and living expenses. A reverse mortgage is a product that allows homeowners aged 62 and older to borrow against the equity of their home. Unlike a traditional mortgage, instead of making monthly payments, borrowers receive funds from the lender in a lump sum, monthly payments, or a line of credit, and the principal and interest are settled when the home is sold, the owner passes away, or the home is no longer used as the primary residence. The most common product is the HECM, which is insured by the FHA and is the only type of reverse mortgage backed by the federal government.

This aspect is advantageous, but there are also burdens to consider. First, there are costs. With origination fees, an initial mortgage insurance premium of about 2%, and an annual fee of around 0.5%, along with closing costs, the initial burden is greater than that of a traditional mortgage. Next is the reduction of equity. Over time, the equity in the home decreases, which may reduce the assets passed on to children. Additionally, property taxes and insurance premiums remain obligations. Even with a reverse mortgage, these obligations remain, and failure to pay them can lead to the risk of default.

Looking at the market in Nashville, the average home value according to Zillow is $434,068, which has decreased by 3.0% over the past year (as of July 31, 2026), while the median sale price according to Redfin is around $480,000. The effective tax rate in Davidson County is about 0.57%, which is higher than the Tennessee average of 0.45%, but relatively low on a national scale. In this senior's case, the property tax burden did not seem to be a significant issue, allowing him to pass the financial capability assessment. However, property tax rates can change annually due to reassessments, and they can vary slightly by district within the county, so I advised him to check based on his actual address.

So, what was the issue with the scams mentioned in the news? Typically, the problem lies in skipping formal procedures and rushing for signatures or packaging reverse mortgages as free home giveaways or investment products. Such approaches differ from the actual HECM process. HECM requires mandatory counseling from a HUD-approved counseling agency before applying, and this counselor is a third party independent of the lender. I advised this senior to schedule a counseling appointment first.

I also shared some signals to help identify scams. If someone advises against receiving formal HUD counseling, pressures you to sign immediately for special benefits, or suggests putting loan funds into other investment products, you should pause and verify. Additionally, I informed him that interest accumulates on the loan balance each month, reducing the remaining equity over time, and that after the owner's death, heirs can either sell the home to settle the loan or buy it directly at the lower of 95% of the appraised value or the remaining balance.

In Tennessee, 17.7% of the population is aged 65 and older (as of 2024), which has increased by 12.5% from 2020 to 2024. As the retired population grows rapidly, interest in reverse mortgages is increasing, but so are the areas that require caution. After receiving counseling, this senior decided to consult with his children before making a final decision. I believe that is the right direction. This article is not investment or legal advice, and I recommend consulting a professional before entering into any contracts.