When facing the decision to take out a reverse mortgage or sell your home, there are a few factors to weigh. Each option has its own pros and cons and can vary depending on your particular situation.
Perhaps the most important thing to consider is your ultimate goal for your future living situation, whether you’re looking to downsize, relocate, or rent.
Pro: Ability to downsize
If you’re looking to downsize or move into a place that’s more suited for your lifestyle, then selling your current home may be the most appealing option.
The process of moving is time consuming, often expensive, and rarely fun. If you do sell your house, you may need to hire movers to help you pack and organize your belongings and transport them to your new residence, where everything needs to be unpacked.
Pro: Less responsibility
One benefit of renting rather than owning is that you won’t have obligations associated with being a homeowner. Those obligations include property maintenance and home repairs along with related taxes and insurance.
Con: Ongoing rent expense
If you end up renting after selling your home instead of buying another one, you’ll need to pay rent each month—and it’s possible that rent may increase as time goes on, presenting a variable cost. Alternately, you may not be able to renew your lease and be forced to move again.
…Or Reverse Mortgage?
The decision to take out a reverse mortgage may stem from a variety of reasons, whether it’s a desire to stay in your home or the need for extra cash flow.
Pro: Stay at home
People overwhelmingly want to stay in their homes as they age: AARP studies consistently show that about nine in 10 older Americans want to age in place.
A reverse mortgage is a financial tool that can enable you to do so. The federally-insured Home Equity Conversion Mortgage (HECM) program allows homeowners aged 62 and older to borrow against the equity they’ve built up in their home.
Borrowers retain the title to their home, and the loan term goes until you die or leave your home, as long as you maintain your property and remain current with property taxes and homeowners insurance.
Con: Home maintenance
Many times as people age, they become less able to maintain a home or a property. However, with the proceeds from your loan, you have the option of hiring a company to do house cleaning or yard work.
Pro: Increased cash flow
If you’re “house rich, cash poor,” a reverse mortgage is a tax-free way to use your home equity to supplement your income. You can opt to access your loan proceeds in a variety of formats, whether it’s a lump sum, monthly payments, or a line of credit.
Con: Costs of origination
There are several costs associated with taking out a reverse mortgage, including origination, appraisal, and title insurance fees. However, you are usually able to finance most of those fees into your loan, rather than needing to pay them out of pocket.
Pro: Use a HECM to move
If you are interested in a reverse mortgage but you also would like to downsize or relocate, consider the HECM for Purchase. This program allows you to buy a new home and take out a reverse mortgage within a single transaction, which can help save on time, paperwork, and closing costs.
Con: The loan must be paid back
Although a reverse mortgage is very different from a “forward” mortgage, it still accrues interest over time and has to eventually be paid back. Many times, this is done by selling your home and using the proceeds to pay back the lender.
Your estate may be responsible for this process, and adult children are sometimes unhappy at the prospect of not receiving the home as inheritance. However, you or your heirs are able to keep whatever’s left from the sale of your home, once the loan is repaid.
Pro: Healthcare at home
As people age, their health needs may increase. With a reverse mortgage, your loan proceeds can be used to pay for home care and/or home modifications to help you age in place.
Have any questions about any of the pros and cons of selling your home versus getting a reverse mortgage? Don’t hesitate to call us.
- Is a Reverse Mortgage Right for Me?… Let’s Weight the Pros and Cons
- 4 Reasons A Reverse Mortgage May Be a Bad Idea
- Top 10 Reasons Why You Should Consider a Reverse Mortgage