Are There Alternatives to Reverse Mortgages?

Alternatives to reverse mortgages include refinancing, home equity loans, home equity lines of credit and selling the home to downsize. Reverse mortgages — special loans only available to seniors — come with many advantages, including no loan payments, being able to stay in the home and having access to money that can be used for expenses.

However, not everyone qualifies for a reverse mortgage, and they have drawbacks, such as a growing balance that’s paid when the house sells or the owner no longer lives there, potential impact on retirement benefits and a smaller estate left for heirs. Exploring alternatives to reverse mortgages expands the options for seniors who need extra money to cover their expenses.

Refinancing an Existing Mortgage

Senior homeowners with a current mortgage can refinance to ease financial burdens. A lower interest rate typically lowers the monthly mortgage payments, freeing up money in the budget for other expenses. Refinancing a smaller amount, since part of the home is paid off, can lower the monthly payments.

Seniors can also choose a cash-out refinance, which allows them to cash out some of the equity in the home when they refinance. Taking out the equity keeps the mortgage balance and the corresponding monthly payments higher, so it won’t lower monthly expenses. However, it provides access to a lump sum of money that can cover expenses.

Getting a Home Equity Loan or Line of Credit 

Another option for seniors who have equity in their homes is a home equity loan or a home equity line of credit. Both options let homeowners of any age tap into the equity in their homes, using the house as collateral. A home equity loan provides the borrower with a lump sum when they take out the loan. The loan has a fixed interest rate and fixed monthly payments much like a regular mortgage.

With a HELOC, the borrower receives a revolving line of credit up to a certain amount, and they can access money as needed up to the limit. The interest rate is variable as is the minimum monthly payment. Borrowers are typically only required to pay interest each month, but they can pay more to decrease the principal. 

Selling the Home To Downsize

Seniors who don’t mind moving might choose to sell their homes and downsize. A smaller, less expensive home means a smaller mortgage payment. This decreases monthly expenses and frees up cash for other expenses.

A senior who has already paid off their mortgage and owns the home outright can often sell it and take the cash from the sale to buy a smaller home outright. Any remaining money from the original home sale can go into savings or help cover living expenses.

If the original home sale doesn’t result in enough money to buy a smaller home outright, the senior might save some of the profits from the sale to go toward expenses and put the rest toward the purchase of the new home. The mortgage should still be smaller to keep monthly expenses lower while providing a lump sum of cash to put toward expenses. Consulting with a financial advisor can help decide which option is the best based on individual financial situations.