Retirement Retirement Planning

Dave Ramsey Calls This Popular Retirement Move a 'Major Rip-Off'

Many retirees consider this every year. He says don't.

By Josh Koebert , Edited by Laura Hohenstein

Updated Aug. 30, 2026

Add Us On Google

One of the most surprising retirement mistakes people make, according to Dave Ramsey, is falling for a financial product designed to look like a lifeline. Reverse mortgages are pitched as a way to fund your retirement using the home you already own — no monthly payments, no selling, no downsizing required. Ramsey's verdict is blunt: "Thinking of getting a reverse mortgage? Bad idea... Reverse mortgages are major rip-offs."

That is a strong position on a product that roughly 681,000 Americans held as of September 2025, according to the U.S. Department of Housing and Urban Development. Whether he is right depends on your situation, your alternatives, and how clearly you understand what a reverse mortgage actually does.

Get a protection plan on all your appliances

Did you know if your air conditioner stops working, your homeowner’s insurance won’t cover it? Same with plumbing, electrical issues, appliances, and more.

A home warranty from Choice Home Warranty could pick up the slack where insurance falls short.

For a limited time, you can get your first month free with a Single Payment home warranty plan.

Get a free quote

How a reverse mortgage works

A reverse mortgage lets homeowners aged 62 or older borrow against the equity in their home without making monthly payments. The most common version is the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration and comes with mandatory counseling, capped origination fees, and consumer protections that private reverse mortgages do not always include.

The loan generally does not come due until you sell the home, move out permanently, or pass away. When it does come due, you or your heirs repay the loan balance — the original amount borrowed plus all interest and fees that have accrued over the years. Because you make no monthly payments, the balance grows over time, compounding against the equity in your home.

How much you can borrow depends on three variables: your age, current interest rates, and your home's appraised value, capped at the FHA's 2026 lending limit of $1,249,125.

As a rough illustration, a 72-year-old with a $300,000 home might qualify for around $177,000 in gross proceeds before fees and any existing mortgage payoff. Older borrowers and lower rates produce larger loan amounts because the loan is expected to accrue interest over fewer years.

Shopping for cheaper auto insurance? Enter your zip code here to get started.

What Ramsey objects to, specifically

Ramsey's case against reverse mortgages has several distinct parts, and they are worth separating rather than bundling together.

The fees

Ramsey writes that reverse mortgages come with origination fees, closing costs, mortgage insurance premiums, and ongoing servicing fees. That is accurate.

HECM origination fees are capped at $6,000, and the FHA mortgage insurance premium runs 0.5% annually on the outstanding balance, plus an upfront premium of 2% of the home's appraised value. These costs are typically financed into the loan, meaning they compound against your equity over time.

If you’re over 50, take advantage of massive discounts and financial resources

Over 50? Join AARP today— because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.

Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up to 25% off your AARP membership, making it just $15 the first year with auto-renewal.

The foreclosure risk

Ramsey warns that putting your home up as collateral in your senior years is genuinely risky. He is right that reverse mortgages carry default risk — not from missing payments (since there are none), but from failing to maintain the property, keep up homeowners insurance, or pay property taxes.

Thousands of HECM borrowers have faced foreclosure for exactly those reasons, particularly older borrowers on fixed incomes who find the ongoing obligations difficult to maintain.

The inheritance impact

Ramsey is also correct that the loan balance eventually comes due, and if it exceeds the home's value, family members who hoped to inherit the property face a complicated situation.

Under the HECM non-recourse rule, heirs can never owe more than the home is worth — FHA insurance covers any shortfall — but they will need to sell or refinance the home to satisfy the loan if they want to keep it.

His overall framing

"By definition, that means a reverse mortgage is debt," Ramsey writes, and warns that someone — possibly a family member — will eventually pay it back. His broader philosophy is that debt in retirement compounds financial vulnerability rather than reducing it.

Retirement News: Almost 80% of Americans fear a retirement age increase — here’s the real reason why

What Ramsey says to do instead

Ramsey's alternatives for house-rich retirees are straightforward. His primary recommendation is to sell the home and downsize. You could capture the equity through a sale, buy or rent something smaller, and use the proceeds to fund retirement without taking on new debt.

His other suggestions include continuing to work if possible, maxing out retirement accounts while still earning, and making early investments so the reverse mortgage question never comes up.

For retirees who want to stay in their home specifically, his advice is essentially: find another way. Downsizing is the cleanest version of extracting home equity because it does not generate compounding interest or layered fees, and it does not put the home at foreclosure risk.

The expert pushback he glosses over

Several retirement researchers have specifically endorsed the HECM line of credit as a financial planning tool rather than a last resort. The non-recourse feature means borrowers can never owe more than the home is worth when sold, and the growing line of credit can be used strategically to bridge market downturns — drawing from home equity instead of selling investments at a loss during a correction.

For a retiree who is house-rich but cash-poor, has no intention of passing the home to heirs, and cannot realistically downsize without significant disruption or cost, the HECM can be a legitimate tool for maintaining living standards. The appeal is real: no monthly payment, tax-free proceeds, and the ability to stay in the home. The question is whether the fees, risks, and compounding interest structure are worth it for that specific person's situation.

The honest middle ground is that Ramsey's advice fits some people well — particularly those with family who could inherit the home, those who can realistically downsize, or those who are taking on a reverse mortgage without fully understanding the fee structure or the property-upkeep obligations. It fits less well for retirees with no heirs, no viable downsizing option, and a genuine cash-flow crisis that the home equity could address.

The bottom line

Ramsey's "major rip-off" label may not apply to every situation, but his concerns about high fees, growing debt, and foreclosure risk are worth considering. Reverse mortgages have federal protections, but retirees should compare alternatives, such as downsizing, before making a decision.

If a reverse mortgage is part of your retirement plan, compare the long-term costs with other options and take advantage of the required counseling with a HUD-approved counselor before moving forward.

More from FinanceBuzz: