The Most Common Complaints About Reverse Mortgages

The most common complaints about reverse mortgages come down to a handful of recurring shocks: fees that swallow a big share of equity before any money reaches the borrower, a loan balance that compounds every month, foreclosures triggered by unpaid property taxes or an extended stay in a care facility, surviving spouses and heirs squeezed by tight rules, and a sales process that moves faster than most seniors can absorb. The product is legal, federally insured, and sometimes the right choice. But the grievances are specific, and they show up again and again in the same places.

Fees That Shrink the Proceeds Before You See Them

The first complaint usually surfaces at the closing table. A stack of mandatory costs comes out of the loan before the borrower touches a dollar.

The origination fee is capped by HUD at the greater of $2,500 or two percent of the first $200,000 of the maximum claim amount, plus one percent of any amount above that. On a $400,000 home, that reaches $6,000. Lenders can charge less. In practice most charge the cap.

Then comes the FHA mortgage insurance premium. The upfront portion is two percent of the maximum claim amount, collected at closing. On that same $400,000 home, that’s $8,000. An annual premium of 0.5 percent of the outstanding loan balance is added to the debt every year after that.¹ The insurance is what makes the loan non-recourse, protecting borrowers and heirs from ever owing more than the home is worth. It still reduces what you actually receive.

Third-party closing costs pile on: appraisal, title search, inspections, recording fees, mortgage taxes, and credit checks.² A monthly servicing fee follows, capped by HUD at $30 for fixed-rate and annually adjusting HECMs and $35 for monthly adjusting loans.³ Those servicing fees are set aside from the principal limit at closing, cutting available proceeds upfront even though they’re paid over time.

The complaint isn’t that the costs are hidden. They’re disclosed. It’s that borrowers don’t grasp the cumulative size until they’re signing.

A Loan Balance That Never Stops Growing

This is where reverse mortgages break from what most people expect. Traditional mortgages get paid down. HECMs get paid up. Interest accrues on every dollar received, on the upfront MIP, on the origination fee, and on accumulated servicing charges. The annual MIP adds another 0.5 percent of the outstanding balance each year. Everything compounds monthly.

Early on, the growth feels modest. Because interest accrues on previously accrued interest, the balance accelerates. A borrower who takes a $200,000 lump sum at 6 percent will owe roughly $360,000 after ten years and more than $640,000 after twenty, without withdrawing another cent. If the home appreciates well, some equity survives. If appreciation stalls, the loan can consume most of the home’s value.

Rate structure matters here too. Fixed-rate HECMs require the entire available amount to be taken as a lump sum at closing, so interest starts accruing on the full amount immediately. Adjustable-rate HECMs allow draws over time through a line of credit or monthly payments, so interest accrues only on what’s actually withdrawn. The trade-off is rate uncertainty: if rates climb, the balance grows faster than projected.

What borrowers say most often is that nobody made the compounding math concrete before closing. They understood conceptually that the balance would grow. They didn’t realize how little equity might be left after 10 or 15 years.

Foreclosure Without Missing a Mortgage Payment

Some of the sharpest complaints come from people who lost their homes even though a reverse mortgage has no monthly payment. HECMs carry ongoing obligations, and missing them triggers default.

Property charges are the biggest trigger. Property taxes, homeowners insurance, flood insurance where applicable, and HOA fees all have to stay current. If any of those go unpaid, the servicer is required to call the loan due and payable.¹ For seniors who took the loan precisely because money was tight, that obligation can become the thing that costs them the house.

Occupancy is the other big trigger. The home has to remain your principal residence, which means living there for most of each year. An absence of more than 12 consecutive months for physical or mental illness can call the loan due. Failing to return the annual occupancy certification the servicer mails out can also trigger default even when you still live there. The paperwork itself matters.³ Borrowers who enter long-term care or move in with family for help are especially exposed.

Set-Asides That Lock Away Your Money

Since 2015, HUD has required a financial assessment before approval. The lender reviews credit, the borrower’s track record of paying property taxes and insurance, and whether residual income is enough to cover future property charges.⁴

If the assessment raises concerns, HUD doesn’t necessarily deny the loan. It requires a Life Expectancy Set-Aside, or LESA, which carves out part of the proceeds to pay property taxes and insurance over the borrower’s estimated remaining lifespan. The calculation builds in a 20 percent cushion for future increases. With a fully funded LESA, the servicer pays those bills directly and the borrower never touches the money. A partially funded LESA still requires the borrower to contribute each year alongside the set-aside.⁴

The complaint is about scale. A borrower with $3,500 in annual property charges and a 20-year life expectancy can see $60,000 or more locked away. Stacked on top of origination fees and MIP, the loan can end up delivering a small fraction of what the borrower was counting on. The set-aside is designed to prevent tax-and-insurance foreclosures, and it works. Borrowers who came in expecting a specific number still feel blindsided.

A Sales Process That Moves Too Fast

Complaints about the sales side are the oldest ones in this market. The product is complicated, and it’s marketed heavily to a population that’s often financially stressed and unfamiliar with how compounding debt works. Some advertising frames a reverse mortgage as “free money” or implies the government is issuing a payout, instead of explaining that it’s a loan against the home.

The worst cases involve borrowers steered into using proceeds to buy annuities or other products that benefit the salesperson. Equity leaves the home and gets tied up in products with steep surrender charges. The borrower is worse off than before.

HUD requires every applicant to complete a counseling session with a HUD-approved counselor before closing.⁵ Lenders can’t attend, and HUD has rules against steering applicants to specific counselors.⁶ The idea is an independent check on whether the loan makes sense. The complaint is that the session covers too much ground too quickly. Compounding math, occupancy rules, implications for heirs, and the LESA possibility all in one sitting is a lot to absorb, especially for someone who has already been sold hard on the product.

Borrowers do have three business days after closing to rescind the loan. By that point most have been in the pipeline for weeks and don’t feel they can back out.

A Surviving Spouse Left in a Bad Spot

When only one spouse is on the HECM and that borrower dies or moves permanently into a care facility, the loan becomes due and payable. For years this left surviving spouses facing eviction from homes they’d lived in for decades. HUD eventually created a Deferral Period that lets an eligible non-borrowing spouse stay, but the conditions are strict.

The non-borrowing spouse has to have been identified in the loan documents at origination, has to obtain ownership or a legal right to remain for life after the borrower’s death, has to keep using the home as a principal residence, and has to keep paying taxes, insurance, and maintenance.⁷ Miss any one of those and the deferral ends. During the deferral, the surviving spouse can’t receive any additional loan advances, so the financial lifeline dries up exactly when the household loses a member.

The deeper grievance is that many couples didn’t understand what leaving one spouse off the loan would eventually cost. Sometimes the younger spouse was excluded to raise the principal limit, since a borrower’s age drives how much can be accessed. The short-term gain creates a long-term vulnerability that hits at the worst moment.

Heirs on a 30-Day Clock

When the last surviving borrower dies, or a non-borrowing spouse’s deferral ends, the servicer sends a due-and-payable notice. Heirs then have 30 days to decide whether to pay off the loan, sell the home, or hand it over through a deed in lieu of foreclosure. The timeline can be extended up to six months to complete a sale or arrange financing, but the extension isn’t automatic.⁸

Because HECMs are non-recourse, heirs never owe more than the home is worth, no matter how large the balance has grown. If the balance exceeds the current value, heirs can sell for at least 95 percent of the appraised value and FHA insurance covers the difference.⁹ This is sometimes called the 95 percent rule.

Heir complaints focus on two things. Servicers don’t always clearly explain the 95 percent option, so heirs who don’t know about it assume they either owe the full balance or lose the home. And the timeline is punishing. Selling a home, getting an appraisal, negotiating with the servicer, and closing a real estate transaction inside six months is aggressive under any circumstances. Add grief and estate administration, and heirs feel the system is stacked against them. Reported delays from the servicer side make it worse; heirs describe waiting weeks for callbacks while the clock runs.

Risks to Medicaid and SSI

Reverse mortgage proceeds aren’t taxable income. The IRS treats them as loan proceeds, so a lump sum or monthly payment doesn’t hit your tax return. Interest isn’t deductible until it’s actually paid, which for most borrowers means when the loan is settled.¹⁰

The less-understood problem is with means-tested benefits. Proceeds aren’t counted as income for Supplemental Security Income, but they become a countable resource the moment you receive them. Anything left on the first day of the following month counts against the SSI resource limit of $2,000. Exceeding the limit can disqualify you. Transferring the money to someone else to stay under can trigger a penalty for transferring resources without adequate compensation.¹¹

Lump-sum borrowers face the highest risk. A large deposit sitting in a bank account can threaten Medicaid eligibility and SSI at the same time. Monthly payment or line-of-credit options lower the risk because smaller amounts are easier to spend within the month. This interaction with public benefits rarely gets emphasized in the sales pitch, and it can undo the very stability the loan was meant to provide.

The Gap Between Expected and Actual Proceeds

The last recurring complaint is the gap between what borrowers thought they’d receive and what actually shows up. HUD uses principal limit factors that set the percentage of the home’s value you can borrow, based on age and the current interest rate. Younger borrowers get less because the loan is expected to last longer and accumulate more interest. At age 62 with an expected rate around 5.875 percent, the principal limit is roughly 36 percent of the home’s value. At 75 it’s about 45 percent. Even at 90 it’s around 62 percent.¹²

Those percentages are the gross principal limit before costs come out. After the upfront MIP, origination fee, closing costs, servicing set-aside, and any mandatory LESA, the net can be 10 to 15 percentage points lower. A 65-year-old with a $400,000 home might see a principal limit around $153,000 and receive closer to $130,000 in usable proceeds. For borrowers who expected to access half their equity or more, that’s a rough surprise. The fees themselves start accruing interest immediately, which grows the balance before the borrower has spent a dime of their own money.

The 2026 maximum claim amount for a HECM is $1,249,125,¹² but the ceiling matters far less than the deductions. What borrowers walk away with is what shapes the complaints.

1
U.S. Department of Housing and Urban Development. Home Equity Conversion Mortgages for Seniors
2
Consumer Financial Protection Bureau. How Much Does a Reverse Mortgage Loan Cost
3
U.S. Department of Housing and Urban Development. HECM Handbook 7610.1
4
U.S. Department of Housing and Urban Development. HECM Financial Assessment and Property Charge Guide
5
HUD Exchange. HUD Housing Counseling Handbook – Reverse Mortgage Housing Counseling
6
HUD Exchange. HECM Origination Counseling
7
eCFR. 24 CFR Part 206 Subpart B – Eligible Borrowers
8
Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die
9
U.S. Department of Housing and Urban Development. Mortgagee Letter 2015-10
10
Internal Revenue Service. For Senior Taxpayers
11
U.S. Department of Health and Human Services. CMS Letter on Lump Sums and Estate Recovery
12
U.S. Department of Housing and Urban Development. HUD FHA Announces 2026 HECM Limits