Can a Reverse Mortgage Help Pay Off My Existing Debt?

Yes, a reverse mortgage can help pay off your existing debt by converting your home equity into cash, which you can use to clear balances like credit cards, medical bills, or even an existing mortgage—eliminating those monthly payments and easing your financial load. You don’t incur new monthly mortgage payments to replace them, so it’s a way to eliminate debt without stretching your income. Here’s how it can work, typically through a standard reverse mortgage.

How It Pays Off Debt

• • Lump Sum: Take a one-time payout to pay off debts in full—say, $30,000 for credit cards or $100,000 for a mortgage balance.
  • Line of Credit: Draw funds as needed to pay off debts gradually, keeping flexibility for other expenses.
  • No Monthly Repayment: Unlike a traditional loan, the reverse mortgage doesn’t add a new bill; it’s repaid later when you sell, move out, or pass away, usually via the home’s sale.

Mechanics

• • Eligibility: You’re 62+, own your home (with enough equity to cover the debt), and it’s your primary residence. You still pay taxes, insurance, and upkeep.
  • Amount: Depends on your age (older gets more), home value, and rates—enough equity can cover big debts.
  • Debt Payoff: If you have a current mortgage, the reverse mortgage must pay it off first; leftover funds go to other debts or your pocket.

Why It Helps

• • No Monthly Payments: Paying off a $500/month credit card bill or $1,200/month mortgage frees up your disposable income.
  • Reduces Stress: High-interest debts (like 20% APR cards) stop compounding, saving you thousands over time.
  • Preserves Savings: Pay debts with equity, not your retirement nest egg.

Quick Example

• • You’re 68, with a $350,000 paid-off home and $40,000 in credit card debt ($800/month payments). A reverse mortgage gives you $150,000 as a lump sum. You pay off the $40,000, pocketing $110,000 or leaving it as a credit line. Your $2,000 monthly income, once stretched by $800 payments, now covers taxes/insurance ($400/month) and life with $1,600 left—no debt drag.

Does It Fit?

• • It’s a fit if your debt’s a burden, you’ve got equity to spare, and you’re okay trading home value for relief now. It’s less about growing wealth and more about shedding weight. 

Reverse mortgages can be a useful financial tool for eligible seniors looking to supplement income, pay for healthcare, or cover living expenses, but they also come with complexities that should be thoroughly understood before proceeding.

Learn more about eligibility requirements for a reverse mortgage, situations where a reverse mortgage is best used, and common myths around reverse mortgage that we debunk with facts