Find out about alternative ways to access your home's equity without a reverse mortgage. Explore Truehold's solutions for financial flexibility.
Whether you’re planning your living situation and budget for retirement years or considering creative ways to leverage your home equity, a reverse mortgage can be an appealing solution.
Before you commit, however, consider this: less than 50,000 borrowers took out reverse mortgages in 2018, compared to 2.5 million that used other types of home equity debt (cash-out refinancing or a home equity loan or line of credit).1
There’s a reason reverse mortgages aren’t more popular—they’re complex debts that come with significant risks. Plus, there are options including downsizing and sale-leasebacks that allow you to convert your home equity without taking on new debt.
Below are six alternatives to reverse mortgages to help you decide what will work best for you.
What if someone paid you every month to remain in your home? Reverse mortgages sound like a too-good-to-be-true deal, but they are in reality a debt (mortgage) that has both benefits and drawbacks.
The borrower receives either monthly income, a line of credit, a lump sum, or a combination of these. But instead of monthly payments like most loans, repayment isn’t due until the homeowner dies or the property changes hands.
Unlike traditional mortgages, reverse mortgages are available from a limited lender pool. Most of these lenders are approved by the FHA (Federal Housing Administration) to offer the federally insured HECM (home equity conversion mortgage) which is the most commonly issued type of reverse mortgage.1,2
Finally, as with any product aimed at seniors, the reverse mortgage market attracts a high number of unscrupulous vendors who promote fraudulent or misleading services. More so than with any other type of home equity conversion, it’s critical to understand all the contract details and work with a reputable reverse mortgage lender.
Reverse mortgage loan summary:
Now let’s breakdown a reverse mortgage vs. home equity loan. So long as you retain at least 20% equity in your home, you can take out a home equity loan at any age. They’re fixed-interest, lump-sum loans that you can repay over 10, 15, or 30 years with monthly repayments that include both interest and principal.
While home equity loans can be used for any reason, they’re often taken out for big-ticket needs such as education, medical bills, or major home remodeling. Generally, borrowers are advised against using home equity loans to support living expenses, so you’re advised to seek professional guidance if you opt to use a home equity loan to fund income-producing retirement investments.
Just as with any loan secured by your property, home equity loans come with the risk of foreclosure if you can’t repay them. This risk means you’ll get a lower interest rate than you would with an unsecured personal loan or credit card.
Home equity loan summary:
A HELOC, or home equity line of credit, is similar to a home equity loan in that your loan is secured by your property, risks the loss of your home if you can’t repay it, and has similar credit history requirements.
However, instead of a lump sum, you’re opening up a line of credit that you can use or not use as needed. There are two stages to a HELOC:
If you don’t yet own your home in full, you can also borrow against it with a cash-out refi. Instead of adding another loan to your monthly bills, you’ll refinance your primary mortgage. Your lender will provide:
Monthly principal-plus-interest repayments will begin immediately after closing, replacing your previous mortgage payments. A cash-out refinance can be useful to free up cash for major projects, but think carefully before refinancing your existing mortgage to a higher interest rate.
Cash-out refi summary:
New mortgages and loans aren’t the only alternatives to reverse mortgages. Many seniors choose to scale down to a smaller home, particularly if their property was sized to house now-grown children.
You might pay more to live in a one-bedroom apartment in New York City than a sprawling midwestern rambler, but in most circumstances, downsizing is a path to reducing monthly housing expenses. In addition to trading down to fewer square feet, smaller homes mean:
The sale of your current home will exchange your full equity for cash, and if you’re looking to supplement your budget, you can work with a financial planner to invest in income-producing annuities or other accounts.
With a home equity sharing agreement, instead of taking on new debt, you actually sell a minority ownership stake in your property to an investment company.
Don’t worry—it doesn’t mean the investors can drop by for movie night or list your spare room on Airbnb. They do, however, get a big payout at the end of the contract term (10 – 30 years) or when you sell the house (whichever comes first).13
There are no monthly payments to or from you, no interest rate, and easier financial qualifications, but all that comes at a price. When the repayment is due, you’ll owe a lump sum of the equity value originally advanced plus the investment company’s share of the home’s appreciation.
Home equity sharing summary:
Sale-leasebacks (SLBs) have been around for a long time for business use, but are relatively new to residential real estate. Unlike reverse mortgages, there is no age restriction—and no minimum amount of equity you need to own, as for home equity loans and HELOCs.
A sale-leaseback combines two contracts into a single event. At closing, you’ll:
This means that it’s your choice to stay or leave: as long as you comply with the lease, you’ll be able to continue living in your home. At the same time, you’ll get the benefit of having a landlord who:
You’ll cash out all of your home equity based on competitive, data-driven pricing including valuation from an unbiased, third-party inspector. Plus, you can avoid the exhausting process of staging and showing your house to prospective buyers that comes with a traditional sale as well as juggling all the tasks and schedules of a move.
When you want to convert home equity to cash in later years, a reverse mortgage isn’t your only choice. Equity-based loans such as cash-out mortgages, home equity loans, and HELOCs are among the reverse mortgage financing alternatives available to you.
Or, to avoid taking on new debt and loan repayments, you can sell your property and move to a smaller home, or continue living in your house as a renter through a sale-leaseback.
To free up all of your equity without hiring movers, we invite you to explore Truehold's sale-leaseback option. Give us a call and a Truehold Advisor will reach out and review the process with you to see if a sale-leaseback is a good fit for your financial situation and goals.
1. Investopedia. Reverse Mortgages in America: The Statistics. https://www.investopedia.com/reverse-mortgages-america-statistics-5224801
2. U.S. Department of Housing and Urban Development. HUD FHA Reverse Mortgage for Seniors (HECM). https://www.hud.gov/program_offices/housing/sfh/hecm/hecmhome
3. Forbes. Reverse Mortgages: How They Work And Who They’re Good For. https://www.forbes.com/advisor/mortgages/reverse-mortgages/
4. All Reverse Mortgage, Inc. Credit Requirements for a Reverse Mortgage in 2023. https://reverse.mortgage/credit-requirements
5. RetirementLiving. 2023 Reverse Mortgage Lending Limits. https://www.retirementliving.com/reverse-mortgage-lending-limits
6. All Reverse Mortgage, Inc. Current Reverse Mortgage Rates: Today’s Rates, APR | ARLO™. https://reverse.mortgage/rates
7. Bankrate. Requirements for a home equity loan or HELOC in 2023. https://www.bankrate.com/home-equity/requirements-to-borrow-from-home-equity/
8. Bankrate. Current home equity interest rates. https://www.bankrate.com/home-equity/current-interest-rates/
9. Bankrate. Cash-out refinance: How it works and when to do it. https://www.bankrate.com/mortgages/cash-out-refinancing/
10. Investopedia. Cash-Out Refinance. https://www.investopedia.com/terms/c/cashout_refinance.as
11. Bankrate. Compare current mortgage rates for today. https://www.bankrate.com/mortgages/mortgage-rates/
12. CNN Underscored. Know the pros and cons before you take cash out of your home with a refinance. https://www.cnn.com/2020/11/23/cnn-underscored/cash-out-refinance-pros-and-cons/index.html
13. NerdWallet. What Is a Home Equity Sharing Agreement? https://www.nerdwallet.com/article/mortgages/shared-appreciation-home-equity
Chat with a real person & get an offer for your home within 48 hours.Call (314) 353-9757