The Week: Top Reverse Mortgage Alternatives Retirees Should Know

For some homeowners, putting the equity they’ve built up in their home over the years toward a reverse mortgage may be a perfect plan, but that is not the only method of extracting money out of the home to help make ends meet in retirement, a recent article from The Week explains.

There are three options that may help homeowners just as much as a reverse mortgage. The option of refinancing, home equity borrowing with periodic repayment and downsizing are brought up in the article.

First, refinancing might be worth looking into for some homeowners to keep the home as an asset if they want to eventually leave it to their heirs.

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“If you have owned the home for a long time, your payments may have reached the point where they are mostly principal and little interest. Since you are acquiring a larger percentage of interest payments, refinancing may not be the most economical long-term choice for you,” states the article, which was contributed to The Week via Money Tips.

Another tactic that homeowners could use instead of a reverse mortgage is a home equity line of credit (HELOC) or a home equity loan. A perk of these two options is that they typically have lower fees than a reverse mortgage, the article explains.

But the down side to this is that with a HELOC, in particular, homeowners make regular interest payments during the term and at the end of the term, the principal and interest is all due. Another potential disadvantage is that HELOCs can be cancelled or frozen, whereas reverse mortgages cannot.

The third alternative brought up is the idea of downsizing. This option would be for homeowners who aren’t necessarily attached to their home or have trouble maintaining the home long-term. This option would allow the homeowner to receive the equity of the home in one lump sum after the home is sold.

A reverse mortgage still may be the best option for some homeowners who wish to stay in place and eliminate their monthly mortgage payment, but it’s important to research alternatives before jumping right in, the article says.

Read the full article from The Week.

Written by Alana Stramowski

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  • The low number of alternatives, only proves the limited experience the writers at MoneyTips have investigating the current trend in senior finances. Two major trends is taking in room renters and taking in room renters in trade for services.

    We are also seeing moves toward life tenancies, TICs, and even a return of shared appreciation rights. As more Baby Boomers retire, expect the growth of the use of the home as an income generating asset or as an asset from which the bundle of rights can be separated and sold separately. Do not be surprised by the growth of options on the home as a means of raising money.

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