For many retirees exploring reverse mortgages, one of the most misunderstood—but most protective—features is the non-recourse clause. Reverse mortgages are often not thought of as a loan with protections in place or something that can benefit your heirs after you pass away, but that is a huge misconception that could end up costing your heirs their inheritance.

What Does Non-Recourse Mean?

Simply put, a non-recourse loan means that you or your heirs will never owe more than the value of the home, even if the loan balance exceeds what the home sells for. It’s a built-in layer of financial protection that can offer enormous peace of mind.

But how does this work in real life? Let’s break it down with three scenarios to show the difference between non-recourse and recourse loans.

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✅ Scenario 1: Home Sells for Less Than the Loan Balance (Non-Recourse Kicks In)

Maria, age 78, had a reverse mortgage for 16 years. Over time, her loan balance grew to $525,000, by the time she passed away. Due to market fluctuations and deferred maintenance, her home only sold for $430,000 after she passed.

Because her loan was non-recourse, her estate was not responsible for the remaining $95,000 difference. HUD’s insurance (for HECM loans) and/or the non-recourse promise contractually agreed upon with proprietary reverse mortgages covered the shortfall. Her family walked away without financial liability and they were able to receive the other assets Maria owned through her estate.

➡️ Bottom line: Non-recourse loans protect heirs from being burdened by a market downturn or a long life that naturally allows the loan balance to exceed the value of the home.

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⚠️ Scenario 2: Traditional Loan with No Non-Recourse Protection

Alan used a traditional second mortgage to tap into his home’s equity. After making monthly mortgage payments for several years, he still owed $150,000 on the second mortgage and $100,000 on the first by the time he passed away. But the home sold for only $125,000 due to fire damage and a depressed market. When Alan passed away, he had some cash in his IRA, a paid off boat worth $20,000 and a small lake house that had been in his family for generations that was worth about $100,000.

Because he had a traditional loan (not a reverse mortgage) his loan did not have non-recourse protection, the lender pursued his estate for the remaining $125,000 shortfall. This included his cash, boat and lake house that his heirs were hoping to inherit. In some cases, if no estate is available, the surviving spouse or co-signers could be held liable.

➡️ Bottom line: With traditional loans, you risk being “underwater”—and those risks can fall on your family.

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Why This Matters for Retirement Planning

At Freestone Mortgage, we believe your home should be a tool, not a trap. Non-recourse protections are one of the most important safety nets built into reverse mortgages. They ensure your retirement strategy adjusts to life’s uncertainties—without putting your loved ones at risk. If you have a mortgage that won’t be able to be paid off before you pass away and other assets outside of your home, a reverse mortgage could act as an insurance policy to protect the other assets from being taken to make up any difference between the mortgage balance and what the home sells for.

Additionally, if a client is unlikely to pay off their traditional mortgage during retirement, a scenario that’s increasingly common, it’s worth exploring whether those ongoing mortgage payments are the most efficient use of capital. In many cases, reallocating those funds through a reverse mortgage strategy can enhance cash flow, preserve portfolio longevity, or better align with overall retirement goals.

If you’re considering tapping into your home equity, let’s walk through the options and make sure you’re protected from both market volatility and misinformation. Reach out to us today to run your scenario through our proprietary software so our experienced loan officers can provide you actual data driven insights to base your decision making on.