For borrowers inclined to seek reverse mortgage alternatives, shared equity investments may provide a path forward when aiming to avoid traditional equity tapping methods such as selling the home and moving to a new one. However, for borrowers with enough equity to benefit from a reverse mortgage, it still serves as a viable option for those seeking to add to cash flow in retirement. This is according to nationally-syndicated columnists Ilyce Glink and Samuel J. Tamkin in a column published at the Washington Post.
“Reverse mortgages have been around for more than 20 years. The concept is enticing: If you’re over age 62 and you have equity in your home, there are a number of lenders who will give you a loan for a certain percentage of available equity (often up to 85%, but sometimes quite a bit less),” the Washington Post column reads. “The loan provides you with cash and no requirement to repay the loan until the home is sold or the owners pass away.”
However, if for some reason a reverse mortgage either does not work out or isn’t an appropriate option for a particular borrower, alternative options – including both traditional and non-traditional varieties – exist for seniors to bolster cash flow in retirement.
“It sounds like you needed cash, maybe didn’t qualify for a home equity line of credit and turned to a reverse mortgage as a way to secure the funds you required,” the duo explains to the WaPo reader who posed a question about their own reverse mortgage. “The problem is the one you now face: You had a home without much in the way of equity, took what you could, and now have run through the cash and are out of options to get more.”
The most common recommendation the pair gives to such situated people is to sell the home, the simplest and most direct way to access the value built up in the home but which requires the person to leave the home behind.
“A lot of times, seniors balk at moving,” the pair writes. “It’s a lot of physical and emotional work to go through and toss years (or decades) of accumulated stuff, or they simply can’t fathom the idea of fixing up the property to sell the home quickly. Staging a home isn’t simple, especially if the home in question hasn’t been updated in a long time, which often happens when homeowners are short of funds.”
However, new alternatives worth exploration for such situated seniors could be shared equity investment products, the pair says.
“Hometap, for example, makes an investment in the property in exchange for taking an equity stake in your home. Currently offered in 15 states, the company takes an ownership stake in the property, making a bet against the future value of your home,” the pair writes. “This product works like a shared appreciation mortgage: You get the cash today, don’t have to repay anything and then when you sell, the company gets the value of its stake from the proceeds. If the home has gone up in value, it gets a little extra. If it goes down in value, it gets less.”
Late last year at an event hosted by RMD, Jeffrey Glass, CEO of Hometap described the relationship his organization has with the reverse mortgage industry as potentially complementary as opposed to directly competitive.
“[Ours] is quite an adjacent product. The way I think about it is while they share a very similar, high-level goal of helping a homeowner see cash without having to make monthly payments, home equity investments are really quite different,” Glass says. “I think it’s important to understand that typically, it’s a lump sum payment that happens upfront. There’s no interest rate. And in fact, the ultimate settlement with the company is based on the future value of the home.”
Read the column at the Washington Post.