Reverse mortgages are not the only option for getting available cash out of your home equity.
Your are at least 62 years old.
This means you are eligible to apply for a reverse mortgage.
Reverse mortgages allow you to borrow against your home equity to receive a line of credit, monthly payments, or a combination of the two.
You need not need repay this loan until you sell the home, move, become delinquent on property taxes or insurance, the house falls into disrepair, or you die.
Upon any of these triggering events, the house is sold and the money used to repay your reverse mortgage.
According to a recent Investopedia article titled “Alternatives to a Reverse Mortgage,” reverse mortgages may not be appropriate for everyone.
You could leave your surviving spouse and your heirs without the family home when you die.
For those who are sentimental, this can be troubling.
If you do need money, what other options do you have?
Refinance Your Mortgage.
Look into refinancing your current mortgage.
You can lower monthly payments.
In turn, this leaves more cash each month.
Lowering the interest rate can help you build equity in your home more quickly.
Unlike reverse mortgages, refinancing your loan allows the home to remain an asset for you and your heirs.
Get a Home-Equity Loan.
This is essentially a second mortgage.
You can borrow again the equity in your home.
Before choosing this option, you should know the Tax Cuts and Jobs Act restricted home-equity loan interest deduction eligibility.
What does this mean?
You will only be able to deduct the home-equity loan in the 2018 to 2025 tax years if the loan is for a qualified purpose.
The risk of this option?
Losing your home if you default on the loan payments because the home is has become collateral.
Use a Home Equity Line of Credit.
This option allows you to borrow up to your approved credit limit as needed.
How is this different from a home-equity loan?
The home-equity line of credit allows you to only pay interest on the amount you take out.
A home-equity loan requires interest to be paid on the entire loan amount.
Because the loans are adjustable, your monthly payment will have fluctuating interest rates.
With your children grown and out of your house, you may choose to downsize.
Selling your home allows you to tap into the equity of your home while saving time and money on upkeep.
A smaller home may be more affordable and allow you to invest or save the extra money.
Sell Your Home to Your Children.
You could sell your home to your children .
After they have purchased the home, you can continue to rent the home from them.
This will allow your children to earn rental income, while you can stay in place.
You could also simply choose to sell the home to your children and downsize.
Another option would be to create a private reverse mortgage.
This would function similarly to traditional reverse mortgages, but the interest and fees would remain in the family.
Although reverse mortgages may be the best option for those with a lot of home equity and little income for retirement, it may be wise to explore all your options before committing to a reverse mortgage.
Reference: Investopedia (June 25, 2020) “Alternatives to a Reverse Mortgage”