Alternatives to Reverse Mortgages for Seniors

A reverse mortgage allows you to convert the equity in your home into cash that you can use for other purposes. Basically, you are selling your home on loan to a lender in increments. It is a common method for older people to supplement living expenses. Consider these alternatives to a reverse mortgage before committing. This is a short summary on the alternatives to reverse mortgages for seniors.

Paymentsdo not begin until the owner moves out of the house permanently passes on.  Or transfers the property as long as the house is maintained and property-related bills (taxes and insurance) are paid.  However, reverse mortgages have disadvantages including reduced capital fees and potential financial burdens on heirs.  Not to mention running out of capital before costs are incurred. 

Reverse mortgage alternatives:

Sale / Discount:

Instead of selling increments, why not sell everything at once? You are likely to get more of your equity and could use some of those funds for alternative housing.

Sell to a family member:

If a family member is willing and financially able.  You can make arrangements to sell your home to that family member as long as you are allowed to stay home.  Put the terms in writing, or risk family arguments and confusion about obligations.

Refinancing:

If you have a high interest rate on your current mortgage, you could save money by refinancing. You will still have to make monthly payments, but keep the house to pass it on to your heirs.

Home Equity Line of Credit (HELOC):

HELOCs allow you to borrow against your capital in a manner similar to a credit card. By making payments, you can borrow up to a limit and reset your loan limit.

Home Equity Loans:

Similar to HELOC, except that the terms are more similar to those of a traditional loan. Get a lump sum and pay the loan in installments. Home equity loans like to handle a large one-time cost but they run the risk of being closed if you don’t pay.  Remember that your credit score can affect the interest rates you qualify for on mortgage refinancing, HELOC, or a home equity loan. You can check your credit score and read your free credit report in minutes.

Rental options:

If you are comfortable sharing your home with strangers, Airbnb and similar rental programs are an option, or you might consider bringing a roommate with a monthly rental. Take legal and safety precautions if you choose this route.

Retirement plan funds:

If you are not yet retired, you can borrow your 401 (k) funds or make an early distribution (no penalty if you are 59 and a half) less if you are retired and take distributions, you can increase the amount of its distribution for a short period. Be aware of taxes and remember that you are losing a deal that you can never get back.

Assistance Programs:

Do you qualify for property tax relief, discounts on utilities, assistance with your prescription drug costs, or other government benefits designed to help seniors on a budget? The National Council on Aging (NCOA) provides assistance to benefit through the Benefit Verification Program.

Verify Social Security benefits:

Verify your work history with the Social Security Administration. Show that there are no mistakes like lack of income for a few years that reduce your benefits. Restoring the benefits that are right for you may cover some of the costs of living.

Each of these options may be a better option depending on your cash flow and time needs, as well as your legacy options. Where do you need the money and when can you return it in light of your income and expenses? Online calculators can help you run scenarios and compare options. Consider these alternatives to reverse mortgages, and if you think a reverse mortgage is the best, proceed with the confidence that you have performed due diligence.

Before you go, I hope this article on the alternatives to reverse mortgages for seniors is helpful for you.