Despite the fact that the market penetration for the reverse mortgage product category is significantly lower than that of traditional term mortgages, a reverse mortgage seems at least to be associated with the act of extracting and converting value. home for the elderly in cash. Because of this association, some people may not be aware of potential alternative options to reverse mortgages, according to a column published on Forbes this week.

“If you’re 62 or older and home equity is your biggest asset, a reverse mortgage might be right for you,” the column notes. “You also have to own your home without a mortgage or be about to pay it off. Ideally, you plan to live in your home indefinitely, so it should be age-friendly, perhaps with a few minor modifications. However, it is also possible to use a reverse mortgage to buy another home.

Still, some alternatives to a reverse mortgage that seniors can potentially explore boil down to four key alternatives, according to Forbes. The first is simply to sell the house and access its equity through the sale.

“By selling your house, you will unlock 100% of your equity,” the article notes. “You can’t exit the deal with the full amount: most people will pay a real estate agent’s commission and spend the money fixing the house to maximize the sale price. “

This option may also not be ideal for someone wanting to stay in their home, as selling the home obviously requires moving. For those who wish to stay in their home, refinancing an existing term mortgage is the second potential alternative cited, as a better interest rate could potentially help lower the homeowner’s traditional mortgage payment.

“You can choose a withdrawal refi over a rate and term refi if you need a lump sum now, but will have reliable cash flow to make monthly mortgage payments in the future,” note the column. “You can also choose it if the interest rates are low. With either type of refinance, you will pay closing costs which typically add up to 1% to 4% of the loan amount. Plus, you’ll pay interest on the mortgage. Overall, the costs can be similar to moving, but you won’t have to move.

Income and credit score requirements could be major hurdles, however, according to the column. The third and fourth options are a Home Equity Line of Credit (HELOC) or a Home Equity Loan, respectively. However, a HELOC requires payment on all money taken out, which can lead to increased payments over time, and a home equity loan also requires monthly payments. A reverse mortgage does not require any direct monthly payment tied to the loan balance.

“If you need more cash in retirement, taking out a reverse mortgage could help you access equity in your home,” the column notes. “But this type of loan is not for everyone, especially if you are a relatively young retiree. Consider all of the options available to you to unlock your home equity before making a decision.

Read it column at Forbes.

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