Many senior homeowners choose to use a reverse mortgage as part of their retirement plan. It is a popular financial tool to supplement income, consolidate debt, or provide a safety net for other purposes. However, reverse mortgages aren’t the right solution for everyone. It is important to understand your options and consider various alternatives to a reverse mortgage loan before you make a decision.
Reverse Mortgage Alternatives
- Downsizing or Selling: If you’re not interested in aging in place, keeping your current home, or leaving your home to your heirs, then selling your house may be a great solution.
- Refinancing: If you’re looking for additional cash flow, refinancing your existing mortgage may lower your rate and significantly reduce your monthly mortgage payments. Some also choose refinancing to reduce their loan term and pay off their mortgage quicker, or to get a cash out on their equity. Keep in mind that with traditional mortgage refinancing, you will still have a monthly mortgage payment.
- Home Equity Line of Credit (HELOC): HELOCs allow you to borrow against the equity you have built in your home with options that are similar to credit cards. With a HELOC, you are able to take out various amounts as needed, up to a specified limit, and then make payments to restore your borrowing limit.
- Home Equity Loan: Similar to a HELOC, a home equity loan allows you to borrow against the value of your home. However, the terms are more like a traditional loan. A lump sum is distributed and you pay off the loan in monthly installments. Many choose this option when handling large, one-time expenditures.
- Personal Loans: Personal loans typically have higher interest rates than home financing options. However, since they can be unsecured, no collateral is required.
- Retirement Plan Funds/Social Security Benefits: If you haven’t retired yet, you might want to consult with your financial advisor and appropriate government agencies to understand your options. You may be able to borrow funds from your 401(k), take out an early distribution, and/or choose to defer certain benefits. Some options may be penalty-free, while others might be viable solutions to reach your financial goals. Don’t be afraid to ask questions, you may uncover ways to receive money that is rightfully yours.
If you’ve considered these alternatives and believe a reverse mortgage may be the right fit for you, speaking with a licensed loan officer is a great next step. You can receive a personalized loan assessment by calling 1.800.976.6211 or see how much you may be eligible for by using our reverse mortgage calculator.