Reverse Mortgage Alternatives

Reverse Mortgage Alternatives

 

For many retirees, the equity they have in their homes makes up a large portion of their net worth. In fact, according to the Consumer Financial Protection Bureau, 80 percent of Americans over 65 own their properties outright. This makes a reverse mortgage—a special mortgage product that allows those 62 or older to liquidate their equity—particularly attractive to those with a shortage of other retirement income. They can receive funds in a lump sum or as monthly payments, and they don’t have to pay them back until they move out or pass away.

Unfortunately, this type of mortgage is not the right answer for every cash-poor retiree. Closing costs tend to be higher than you’ll find on a traditional mortgage. You must have enough income to pay your property taxes and maintain the property properly. And, if you borrow early, it’s quite possible your equity will run out before you do.

If you’re looking for ways to use your home to help fund your retirement, give us a call before you settle on a specific course of action. In addition to a reverse mortgage, you may want to learn more about these alternatives.

Alternative: Refinancing your existing mortgage.

If you’re still paying down a mortgage balance, a refinance might enable you to lower your monthly payments. Of course, you’ll also extend the total time before you own your home by 15 or 30 years depending on the type of product you choose. This means you’ll pay more interest overall. And to qualify, you’ll need enough income and assets to prove you have the ability to repay, and a good credit score.

Alternative: Take out a HELOC.

Short for home equity line of credit, a HELOC is another way to tap into the equity you have in your home. Much like a reverse mortgage, the amount you can receive will depend on how much your property is worth and how much you currently owe (if you’re still paying down a loan). You can also take the credit all at once or draw on it as needed—but you’ll have to make payments towards the balance and interest each month.

Alternative: Set up a REX agreement.

A REX agreement basically allows someone else—namely the organization REX & Company—to invest in your home. In exchange for 20 to 50 percent of any increase in value between the initiation of the agreement and when the property is sold, you can receive a cash payment of 12 to 17 percent of the home’s current market value as determined by an independent appraiser. The amount of money you’ll receive is based on the value of your home, the share you choose to sell, the condition of the property and your financial history.

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