Can I get Tax-Free Cash Flow from a Reverse Mortgage?

Yes, you can get tax-free cash flow from a reverse mortgage — and that’s one of the biggest advantages of this type of loan.

When you take out a Home Equity Conversion Mortgage (HECM) — the most common type of reverse mortgage — the money you receive is considered a loan advance, not income. That means it’s not taxable, and it won’t affect your Social Security or Medicare benefits in most cases.

Here’s how it works:

When you qualify for a reverse mortgage, you’re accessing a portion of the equity you’ve built in your home over the years. That equity can then be paid out to you in a way that fits your financial needs:

Ways to receive tax-free cash flow:

• Monthly payments – A steady, predictable stream of money sent to you every month, like a paycheck 
• Lump sum – A one-time payout at closing, often used to pay off an existing mortgage or cover large expenses 
• Line of credit – A flexible pool of money you can draw from when needed, and it grows over time if left unused 
• Combination – Mix and match any of the above to fit your goals and lifestyle

Important notes about tax-free reverse mortgage funds:

• Since the funds are not earned income, they generally do not affect your tax bracket 
• They also typically do not impact Social Security or Medicare eligibility 
• You can use the money however you’d like — to pay off debt, cover daily expenses, travel, make home improvements, or handle unexpected costs

For many retirees, having access to tax-free cash flow can make a huge difference — it’s a way to stay financially stable without selling your home or dipping into savings. Plus, with no required monthly mortgage payments (as long as you meet the basic loan terms), your overall monthly budget becomes a lot easier to manage.

It’s your home equity — and a reverse mortgage simply gives you a smart way to use it.

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