Although many retirees turn to reverse mortgages to access more cash during their golden years, there are alternatives available that may be a better fit for some people. Home equity loans and HELOCs are options for those with equity in their homes. For people who qualify, traditional refinancing might be an option to lower monthly payments or extract extra cash. When all else fails, downsizing or boosting one’s income with a part-time job or by renting a room in the home might suffice. Learning more about the alternatives to reverse mortgages can help retirees ensure that they’ve made the right choice for their situation.
Home Equity Loans
Home equity loans are installment loans secured by a home’s equity. With home equity loans, homeowners get a large cash payment from a bank that they can use towards a big purchase. To repay a home equity loan, borrowers typically make monthly payments spread out over several years.
Paying off a home prior to retirement isn’t always the best choice. Some individuals getting close to retirement may want to consider traditional refinancing instead. Refinancing can stretch the loan balance over a long period of time, which could help reduce monthly payments.
Boosting Retirement Income
Some people may prefer to boost their income in other ways instead of taking on a reverse mortgage. By taking on a part-time job, a person can ease the transition to retirement from full-time work. Another way to increase income could be renting a room in the home.
A home equity line of credit, or HELOC, is similar to a credit card in many ways. A bank will set a credit limit based on the home’s value. When the homeowner needs cash, he or she can draw from the HELOC up to the total credit limit. Once the balance is paid off, the credit line reopens. Interest accrues on the amount borrowed and the money must be repaid during the repayment period.
Owning a home that’s bigger than necessary may not be the best choice for retirees. Maintenance requirements, the cost of utilities, and living expenses can quickly add up. It may be best to move to a smaller home to help save money.