MSN Money: Pros and Cons of Reverse Mortgage Alternatives

For a senior looking for additional cash flow in retirement, a reverse mortgage can help to provide a solution as long as the potential borrower’s situation is a good fit for the use of the product. Still, as some seniors are branching out during the COVID-19 pandemic to try and entertain other potential options, some of these alternatives come with potential benefits as well as the possibility of other risks.

This is according to a column published at MSN Money, which analyzes potential reverse mortgage alternatives for seniors.

Among the possible alternatives, seniors can choose to sell and downsize their homes; refinance their existing forward mortgage; apply for a home equity line of credit (HELOC) or home equity loan; turn their home into a rental property; or if they’re still working, take a distribution from a retirement account.

In comparison with a reverse mortgage, downsizing the home could potentially be beneficial since a senior can use the proceeds from their first home’s sale to finance the purchase of a second, less expensive dwelling. For those who wish to age in place, however, there are some obvious disadvantages.

“The home is no longer yours,” writes Money Talks News columnist Marilyn Lewis, before also specifying that selling that home removes the possibility of leaving it as a bequest asset to any heirs. Refinancing as an option is also viable, considering that the fees may come in under the amount that would be paid upfront for a reverse mortgage, but a big disadvantage to refinancing is that monthly mortgage payments would still have to be made.

A home equity loan or HELOC also comes with lower upfront costs when compared to a reverse mortgage, features lower interest rates and equity access is generally limited. Turning the home into a rental property could also be a viable path for creating additional income in retirement, but a homeowner may be intermittently displaced if the home is being used by vacationers, or adding an additional roommate may diminish the total control a homeowner has over the home.

Taking a distribution from a retirement account may be a good potential solution in the short-term, but also comes with some drawbacks for someone already concerned with cash flow.

“It’s risky to raid your retirement savings earlier in life instead of letting the money continue to compound,” Lewis writes.

Read the article at MSN Money.

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