If you\u2019re a homeowner who\u2019s 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.<\/p>\n
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.<\/p>\n
Here\u2019s what you need to know about reverse mortgages, along with five alternatives to consider:<\/b><\/p>\n <\/a><\/p>\n A reverse mortgage<\/a> is a special type of loan where you borrow against the equity<\/a> in your home and receive funds from the lender. There are several types of reverse mortgages<\/a>, but Home Equity Conversion Mortgages (HECMs) are the most common.<\/p>\n You\u2019ll 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.<\/p>\n 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.<\/p>\n You\u2019ll also need to continue covering all property tax payments, homeowners insurance premiums, and other household maintenance costs while you live in the home. Reverse mortgages come with downsides that might make them unsuitable for homeowners in certain situations.<\/p>\n Best for: <\/b>Passing your home to your heirs<\/p>\n 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<\/a>, you can lower the interest rate, change the loan term, or both. This can free up some cash in your budget.<\/p>\n Learn More: Refinance Program Options for Seniors<\/a><\/strong><\/em><\/p>\n Best for: <\/b>Reducing your overall expenses without incurring new debt<\/p>\n 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.<\/p>\n Seniors may also qualify for financial assistance toward utilities, home repairs, and property taxes through state and local government<\/a> programs or the Administration for Community Living<\/a>.<\/p>\n\n Best for: <\/b>Covering a large expense<\/p>\n Check out: Should You Get a Home Equity Loan for Debt Consolidation?<\/a><\/strong><\/em><\/p>\n Best for: <\/b>Borrowing money only when you need it<\/p>\n\n
How reverse mortgages work<\/h2>\n
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\n<\/a><\/p>\nDownsides to a reverse mortgage<\/h2>\n
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\n\t Pros<\/strong><\/th> Cons<\/strong><\/th>\n<\/tr>\n<\/thead>\n\n \n\t May be cheaper than going through a traditional lender<\/td> May have tax and estate-planning consequences<\/td>\n<\/tr>\n \n\t The home remains an asset for your heirs<\/td> Your family might not be able or willing to fund the loan<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n 2. Refinance your home<\/h3>\n
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\n\t Pros<\/strong><\/th> Cons<\/strong><\/th>\n<\/tr>\n<\/thead>\n\n \n\t Keep some or all of the home equity you\u2019ve built over the years<\/td> Your heirs will likely need to pay off the mortgage balance after you pass away<\/td>\n<\/tr>\n \n\t Pass on the home to your heirs<\/td> A cash-out refinance reduces your equity<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n 3. Sell and downsize<\/h3>\n
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\n\t Pros<\/strong><\/th> Cons<\/strong><\/th>\n<\/tr>\n<\/thead>\n\n \n\t Reduce your housing expenses<\/td> Selling your home and moving comes with costs<\/td>\n<\/tr>\n \n\t You won\u2019t take on new debt<\/td> You\u2019ll have to adjust to a new lifestyle and less space<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n 4. Get a home equity loan<\/h3>\n
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\n\t Pros<\/strong><\/th> Cons<\/strong><\/th>\n<\/tr>\n<\/thead>\n\n \n\t There are no age restrictions<\/td> The monthly payments could strain your retirement funds<\/td>\n<\/tr>\n \n\t You get to keep your home as long as you make payments<\/td> The lender can foreclose on your property if you can\u2019t pay the loan back<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n 5. Consider a HELOC<\/h3>\n
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\n\t Pros<\/strong><\/th> Cons<\/strong><\/th>\n<\/tr>\n<\/thead>\n\n \n\t Only pay interest on what you borrow<\/td> The lender can foreclose on your property if you can\u2019t pay the loan back<\/td>\n<\/tr>\n \n\t Typically has a lower interest rate than other types of loans, like home equity loans<\/td> If home values decline, you could pay back more than the home is worth<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n