What Reverse Mortgage Alternatives Are Available?
While it might seem like a reverse mortgage is the only option you have to move forward, the reality is that there are many different products that may be able to help you achieve your financial goals.
FHA Cash-Out Refinance: A subtype of the FHA’s incredibly popular 203(b) loan, the FHA cash-out refinance allows you to tap into the equity in your home while lowering your monthly payments at the same time. However, this does require that you make ongoing monthly payments to keep the mortgage current.
FHA to FHA Refinance: If you have an FHA 203(b) loan, you can refinance into a new FHA loan. This can allow you to take advantage of reduced interest rates, while also allowing you to achieve a lower monthly mortgage payment. Again, though, you will need to make monthly payments on the loan.
HELOC: If you want to tap into your equity to use those funds for another purpose, you could take out a home equity line of credit, or HELOC. These can offer lower fees and interest charges than what you’ll pay with a reverse mortgage, and you only pay interest on what you use. However, you will find that once the draw period is over, your interest fees may rise sharply.
Home Equity Loan: If the purpose of taking out a reverse mortgage on your home is to tap into the equity, you can do that with a home equity loan. You can generally get a large lump sum up front, and benefit from lower interest rates than are usually available with reverse mortgages. However, you do need to make monthly payments, and you lose equity in your home until the loan is repaid.
The Sale of Other Assets: If you have other assets of value, such as a boat, an unneeded second vehicle, a vacation home, or even annuities or stocks/bonds, it might be worth considering selling them. The sale allows you to tap into money that you already have without going deeper into debt. In addition, it is always advisable to sell second homes and vacation homes prior to taking out a reverse mortgage on your primary residence.
Sell It Outright: If you are struggling financially, it might make the most sense to sell your home outright. This is particularly true if it is paid off, as you will be able to benefit from the full market value of the home. Remember that reverse mortgages usually only allow you access to about 60% of the home’s actual value. Selling can allow you to buy a smaller, cheaper home, and put the remainder of the proceeds away to fund your retirement, pay for medical bills, and more.
Ultimately, there is no perfect solution. Every option comes with some combination of pros and cons. The best path forward might be to work with a financial advisor, or with an FHA-approved reverse mortgage counselor to determine what the better option might be for your specific situation.