Alternatives To a Reverse Mortgage for Homeowners
HS
Last updated 03/20/2024 by
Heather SkylerA reverse mortgage is a loan for homeowners who are 62 and older who want to convert part of the equity in their home into cash (usually tax-free). The borrower keeps the title of the house and is still responsible for paying property taxes, utilities, home insurance, maintenance, and other related costs. It can be a great option for homeowners who are low on income and savings but have plenty of equity in their home. However, they are not for everyone. As you can see in the graph below, their popularity has dropped since 2009. This article provides a detailed analysis of the alternatives to a reverse mortgage.
While a reverse mortgage makes sense for some retirees, not everyone will be able to qualify for one.
First, one homeowner must meet the age requirement. That part is simple. You must also live in the home. It can’t be a rental property.
Another key factor for qualifying is having enough equity in your home. You need quite a bit of equity to qualify for a reverse mortgage. Ideal candidates have paid off their home loans completely or have a very small remaining balance. Even if you do qualify for a reverse mortgage, it may not be the best option for you.
The main alternatives to a reverse mortgage are home HELOCs, cash-out refinance loans, and selling or renting your property. Let’s look at the pros and cons of each option.
Compare Reverse Mortgage Companies
Compare rates and terms from multiple Reverse Mortgage providers.
Home equity line of credit (HELOC)
Kenneth Er, Senior Sales Associate at Compass in the Bay Area, suggests a HELOC as one alternative to the reverse mortgage. A HELOC is a second mortgage on your home that gives you access to a set amount of cash.
The amount is based on the equity in your home. Typically, you are allowed 85% of your home’s value minus the balance remaining on your mortgage.
Cash-out refinance
A cash-out refinance is taking out a larger loan to pay off your existing mortgage. You’ll then use the rest of the loan as cash in hand. People sometimes refer to this as using your home as a piggy bank.
It’s similar to refinancing your home loan, except that, instead of getting a new mortgage equal to the one you already have, you are taking out a larger loan with new terms.
Er says these types of loans are often used for “getting a lump sum for a trip, remodeling, or a child or grand child’s college tuition.” However, a cash-out refinance can be an alternative to a reverse mortgage as well.
Sell the home and buy something smaller – or just rent
Sometimes the best thing to do is to downsize or rent, particularly if your home’s value has greatly increased. If you have a lot of equity, you can sell the existing property, purchase something smaller, and keep the cash difference.
Er adds, “In certain counties in California, you can transfer your property tax base so, even though the homeowner may be buying a property for more, their property tax rate will be the same. This only works with people over 55 years old, in participating counties, and you can only do this one time.”
Alternatives to a reverse mortgage | Start your research
If you’re a retiree who is in need of greater cash flow, start looking into the variety of options available to homeowners.
Check out SuperMoney’s HELOC review page to compare lenders. Or peruse our list of lenders for home mortgage loans if you’re interested in a cash-out refinance.
If you own a home and have some equity, there are options out there for you, even if a reverse mortgage isn’t right for you.
HS
Heather Skyler writes about business, finance, family life and more. Her work has appeared in numerous publications, including the New York Times, Newsweek, Catapult, The Rumpus, BizFluent, Career Trend and more. She lives in Athens, Georgia with her husband, son, and daughter.
Share this post: