Investopedia: 5 Financial Alternatives to Reverse Mortgages

While those 62 or older may opt to convert the equity in their homes into cash with a reverse mortgage, Investopedia details five “top alternatives” to the reverse mortgage product in a recent article.

“Home equity loans can be problematic if not done correctly and require careful attention to the rights of the surviving spouse, if you are married,” Investopedia says. “And of course, the end of the process means you or your heirs give up your home.”

Five ways to tap into one’s home equity rather than taking out a reverse mortgage include: refinancing one’s existing mortgage; taking out a home-equity loan, “essentially a second mortgage;” taking out a home equity line of credit (HELOC); selling one’s home to possibly downsize; and selling the home to one’s child or children.

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Selling a home to downsize might be appealing to folks whose current residence is too big for their current needs, too difficult or costly to maintain or has prohibitively expensive property taxes. 

In addition, one approach to selling the home to a child or children is a sales-leaseback agreement, Investopedia says, noting that the agreement entails selling the home then renting it back using the ash from the sale.

“As landlords, your children get rental income and will be able to take deductions for depreciation, real estate taxes and maintenance,” Investopedia says.

Read the article here.

Written by Cassandra Dowell

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  • I presume the Investopedia author intended to start the second paragraph with “Reverse Mortgages…” rather than “Home equity loans…”, but more importantly, it ends with, “And of course, the end of the process means you or your heirs give up your home.”

    Subsequent options discussed continue to make the argument that with a reverse mortgage borrowers and their heirs must give up the home at the end of the loan which, of course, is not true.

    While the article does accurately point out 5 alternatives to a reverse mortgage, it misses some of the key points as to why a reverse mortgage is often superior to these other options, and it also fails to mention the risks of the 5 alternatives.

    Uninformed, educationally incomplete articles, such as this one in Investopedia, are the primary challenge of our industry today.

  • What is it Forrest Gump used to say? Shockingly laughable “clown candy” advice from Investopedia.
    In my haste to lambast Investopedia for this doggerel I will limit my observations to just a few overlooked issues.
    When you sell your house to your kids, you lose the Capital Gains Exclusion and any property tax Homeowner’s Exemptions and interest will be imputed for children’s income tax reporting in the event there isn’t any interest charged on the loan to the parents. This strategy will likely come into question in any Medicaid Estate Recovery or eligibility determinations including possible intent to impoverish to avoid responsibility for cost of nursing home care.
    …and the list goes on and on. I won’t even bother dissecting the foolishness of “refinancing” or obtaining a HELOC.
    Does NRMLA have an appropriate response to this irresponsible blather? I doubt it.

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