Credible
Get Rates
  • Refinance Student Loans
    • Compare Options
      • Best Refinancing Companies
      • Lender Reviews
      • Refinance Student Loans
      • Student Loan Consolidation
    • Learn the Basics
      • Fixed vs. Variable Rates
      • Forgiveness Programs
      • Consolidation vs Refinancing
      • Repayment Plans
      • More on Student Refi
    • How to
      • Consolidate Your Student Loans
      • Pay Off Your Student Loans
      • Lower Your Interest Rate
    • Tools
      • Current Student Loan Refi Rates
      • Refinancing Calculator
      • Repayment Calculator
      • Student Loan Score Calculator
  • Student Loans
    • Compare Options
      • Private Student Loans
      • Parent Student Loans
      • Law School Loans
      • Medical School Loans
      • Graduate Student Loans
    • Learn the Basics
      • Student Loan Limits
      • Living Expenses
      • Applying for FAFSA
      • Federal Student Loans
      • Student Loan Interest Rates
      • More on Student Loans
    • How To
      • Pay for College
      • Take Out Student Loans
      • Apply Without Cosigner
      • Apply for Student Loans
      • Pay for Grad School
    • Tools
      • Best Private Student Loans
      • Current Student Loan Rates
      • Student Loan Interest Calculator: Estimate Payments
      • Lender Reviews
  • Personal Loans
    • Compare Options
      • Best Personal Loan Lenders
      • Lender Reviews
      • Get Personal Loan Rates
    • Learn the Basics
      • How to Qualify
      • How to Get a Loan
      • Where to Get a Loan
      • Personal Loans with Cosigner
      • Pay Off Credit Card Debt
      • More on Personal Loans
    • Best for
      • Credit Card Consolidation
      • Debt Consolidation Loans
      • Home Improvement Loans
      • Good Credit
      • Fair Credit
      • Bad Credit
    • Tools
      • Current Personal Loan Rates
      • Personal Loan Calculator
  • Mortgages
    • Compare Options
      • Mortgage Refinance
      • Home Loan
      • Best Mortgage Refinance Companies
      • Best Mortgage Lenders
      • Mortgage Preapproval
      • Mortgage Payment Calculator
    • Compare Rates
      • Mortgage Refinance Rates
      • 30-Year Fixed Refinance Rates
      • 15-Year Fixed Refinance Rates
      • Home Loan Rates
      • 15-Year Fixed Mortgage Rates
      • 30-Year Fixed Mortgage Rates
    • Learn the Basics
      • How to Buy a House
      • How to Refinance Your Mortgage
      • How to Get the Best Rate
      • Cash-Out Refinancing
      • More on Home Loans and Refi
    • Pay Off Mortgage
      • Home Equity to Pay Off Debt
      • Paying Off Mortgage Early
      • Mortgage Refinance Cost
  • Insurance
    • Insurance Products
      • Insurance Products
      • Learn more about home insurance
    • Compare Options
      • Compare Insurance Quotes
      • Home Insurance Guide
    • Learn the Basics
      • What Home Insurance Covers
      • How Much Home Insurance You Need
      • Estimate Your Home Replacement Cost
      • How to Change Home Insurance
  • Company
    • About
    • Reviews
    • Blog
    • Lenders
    • Editorial Guidelines
    • FAQs
    • Press
  • Find My Rate
Advertiser Disclosure

Reverse Mortgage Alternatives: 5 Options for Seniors

You might choose to sell the home and downsize, refinance, do a private reverse mortgage, or tap your home equity through another channel.

Kim Porter Kim Porter Edited by Chris Jennings Updated April 25, 2022

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

If you’re a homeowner who’s at least 62, you may be able to use the equity in your home by taking out a reverse mortgage. This may be a good option if you want to supplement your income during retirement.

With a reverse mortgage, instead of making monthly payments on the money you receive, the balance is due when you move, sell the home, or die. But with eligibility criteria, high closing fees, and estate-planning consequences, reverse mortgages may not be the best solution for everyone.

Here’s what you need to know about reverse mortgages, along with five alternatives to consider:

  • How reverse mortgages work
  • Downsides to a reverse mortgage
  • 5 alternatives to a reverse mortgage

How reverse mortgages work

A reverse mortgage is a special type of loan where you borrow against the equity in your home and receive funds from the lender. There are several types of reverse mortgages, but Home Equity Conversion Mortgages (HECMs) are the most common.

You’ll remain the owner of your home and use the proceeds to pay off the balance on your existing mortgage. With a HECM, the rest of the funds can be used for just about anything, from living expenses to debt consolidation, in-home care, home improvements, or an emergency fund.

Repayment is deferred until you sell the home or move out. If you die, then your can heirs sell the home, repay the balance, and keep any excess funds.

To qualify for a reverse mortgage, you — and the home — will need to fit eligibility criteria. The lender will check that:

  • You’re at least 62 years old.
  • You own the home outright or have a low balance. Requirements vary with each lender.
  • You attend a counseling session with an agency that’s approved by the Department of Housing and Urban Development.
  • You or your spouse live in the home as a primary residence.
  • The home is in good condition.

You’ll also need to continue covering all property tax payments, homeowners insurance premiums, and other household maintenance costs while you live in the home.

Downsides to a reverse mortgage

Reverse mortgages come with downsides that might make them unsuitable for homeowners in certain situations.

  • The reverse mortgage may have high upfront costs. You’ll typically have to pay closing costs and fees associated with the loan, such as an initial mortgage insurance premium.
  • You’ll reduce the equity in your home. A reverse mortgage allows you to borrow against your home equity, which decreases your equity and increases your debt.
  • The lender can ask for the balance early. The balance will need to be repaid if you don’t maintain the home, fall behind on property taxes and homeowners insurance, establish another home as your primary residence, or pass away. If you can’t repay, then the lender may foreclose on the property.
  • You may outlive your proceeds. Depending on how you spend the funds from the reverse mortgage, you may run out of money.
  • Heirs might not be able to keep the home. Your heirs may have options for keeping your home after you pass away, but it may also cost them money.

5 alternatives to a reverse mortgage

If you’re put off by the disadvantages of reverse mortgages, you have other options for tapping home equity.

1. Opt for a private reverse mortgage

Best for: Doing a reverse mortgage without the fees and little risk of foreclosure

While HECMs are the most common type of reverse mortgage, you don’t have to go this route. One alternative is to set up a private reverse mortgage, also known as an intra-family loan.

With this approach, your family members — usually your adult children — make regular payments to you, and they get those contributions back when it’s time to sell the house.

This may impact your estate planning and tax situation, so talk with a tax specialist or attorney beforehand.

ProsCons
May be cheaper than going through a traditional lenderMay have tax and estate-planning consequences
The home remains an asset for your heirsYour family might not be able or willing to fund the loan

2. Refinance your home

Best for: Passing your home to your heirs

If you have an existing mortgage, you might be able to swap out the loan with one that better meets your needs. With a rate-and-term refinance, you can lower the interest rate, change the loan term, or both. This can free up some cash in your budget.

A cash-out refinance can also help you cover a large expense because you take out a mortgage for more than you owe, pay off the principal on your old home loan, and keep the difference.

With both types of refinances, pay attention to the new loan term as it can affect your retirement plan. A longer-term mortgage will keep you in debt longer and may cost more in interest. Consider refinancing into a 10- or 15-year loan term.

ProsCons
Keep some or all of the home equity you’ve built over the yearsYour heirs will likely need to pay off the mortgage balance after you pass away
Pass on the home to your heirsA cash-out refinance reduces your equity

Learn More: Refinance Program Options for Seniors

3. Sell and downsize

Best for: Reducing your overall expenses without incurring new debt

You may also decide to sell your home if you need less space and want to reduce your housing expenses. Some types of homes, such as condos or assisted living facilities, even take maintenance off your hands.

Seniors may also qualify for financial assistance toward utilities, home repairs, and property taxes through state and local government programs or the Administration for Community Living.

ProsCons
Reduce your housing expensesSelling your home and moving comes with costs
You won’t take on new debtYou’ll have to adjust to a new lifestyle and less space

4. Get a home equity loan

Best for: Covering a large expense

A home equity loan is a second mortgage that allows you to borrow money using your home equity as collateral. The bank gives you a lump sum of money upfront that you’ll repay over a few years in equal installments.

This could be a cheaper way to borrow cash compared to a reverse mortgage, a credit card, or a personal loan. Plus, you keep the home in the process.

ProsCons
There are no age restrictionsThe monthly payments could strain your retirement funds
You get to keep your home as long as you make paymentsThe lender can foreclose on your property if you can’t pay the loan back

Check out: Should You Get a Home Equity Loan for Debt Consolidation?

5. Consider a HELOC

Best for: Borrowing money only when you need it

A home equity line of credit is another type of second mortgage, but you receive the funds in a different way. You get access to a line of credit that you can borrow from anytime during the draw period, only paying interest on what you borrow.

Once the draw period ends, you have several years to repay any balance that remains. This could be a good safety net if you lack emergency savings.

ProsCons
Only pay interest on what you borrowThe lender can foreclose on your property if you can’t pay the loan back
Typically has a lower interest rate than other types of loans, like home equity loansIf home values decline, you could pay back more than the home is worth

Check out: Home Equity Loan or HELOC vs. Reverse Mortgage: How to Choose

About the author
Kim Porter
Kim Porter

Kim Porter is an expert in credit, mortgages, student loans, and debt management. She has been featured in U.S. News & World Report, Reviewed.com, Bankrate, Credit Karma, and more.

Read More

Home » All » Mortgages » Reverse Mortgage Alternatives: 5 Options for Seniors

Home Equity Guide


  • What Is Home Equity
  • Home Equity Loans
  • Home Equity Line of Credit
  • Cash-Out Refinance
  • Reverse Mortgages
  • Refinance a Home Equity Loan

Understand Your Options

  • Pros and Cons of Second Mortgages
  • Home Equity Loan & HELOC Requirements
  • HELOC vs. Home Equity Loan
  • Cash-Out Refi vs. Home Equity Loan
  • Bad Credit Home Equity Loans

Tools and Resources

  • Refinance Your Mortgage
  • Pay Off Your Mortgage Early
  • Today’s Mortgage Refi Rates
  • How to Find the Best Lenders
  • Lender Reviews

  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Twitter (Opens in new window)
  • Click to email a link to a friend (Opens in new window)

Related Articles

Mortgage Refinance

Types of Reverse Mortgages

Mortgage Refinance

How to Pay Back a Reverse Mortgage

Mortgages

Reverse Mortgages: What They Are and How to Get One

  • Read More
    • Refi Student Loans
    • In School Loans
    • Personal Loans
    • Mortgages
    • Insurance
  • Resources
    • Lender Reviews
    • Loan Calculators
    • Student Loan Score Calculator
    • Data Insights
    • Debt Statistics
    • Sitemap
  • Compare
    • Student Loan Refinance
      • Current Student Loan Refi Rates
    • Student Loan Consolidation
    • Private Student Loans
      • Current Student Loan Rates
    • Personal Loans
      • Current Personal Loan Rates
    • Refinance Mortgage
      • Mortgage Refinance Rates
        • 15-Year Fixed Refinance Rates
        • 30-Year Fixed Refinance Rates
    • Home Loans
      • Home Loan Rates
        • 15-Year Fixed Mortgage Rates
        • 30-Year Fixed Mortgage Rates
    • Insurance
  • Top Lenders
    • Best Student Loan Refi Companies
    • Best Private Student Loans
    • Best Personal Loans
    • Best Mortgage Lenders
    • Best Mortgage Refinance Companies
  • Company
    • About
    • Reviews
    • Blog
    • Editorial Staff
    • Editorial Guidelines
    • News
    • Press
  • Legal
    • Terms of Use
    • Privacy Policy

© 2023 Credible


Credible Operations, Inc. NMLS ID# 1681276 | NMLS Consumer Access | Licenses and Disclosures
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Disclosure

Affiliated Business Arrangement Disclosure

Credible Operations, Inc., (“Credible”) has a business relationship with Young Alfred, Inc., (“Young Alfred”), an insurance broker. Please click here for the full Affiliated Business Arrangement disclosure form. You are not required to use Young Alfred as a condition for settlement of your loan.

Similarly, Young Alfred has a business relationship with Credible, a mortgage broker. Please click here for the full Affiliated Business Arrangement disclosure form. You are not required to use Credible as a condition to obtain access to any settlement services, such as homeowners or other insurance products.

Acknowledgement

By clicking “Accept” below, I/we acknowledge that I/we have read the applicable full disclosure form, and understand that any referrals by Credible for insurance settlement services or any referrals by Young Alfred for mortgage settlement services, may result in Credible, Young Alfred, its parent company, and/or its affiliates receiving a financial or other benefit.