Continuing to live at home as you get older can become challenging, as expenses may be burdensome, and many people’s wealth remains locked in their home equity. With today’s housing market, many people are considering selling their home for the financial benefits, but some may not be ready to leave. If this situation sounds familiar to you, there are a few options to consider that allow you to access your hard-earned equity without leaving the home you love.
Reverse mortgages have been around for decades, and while they might be right for some people, they have a checkered, stigma-laden past. With a relatively short history in the United States, the first reverse mortgage was issued in 1961.
A few decades later, during the 2008-2009 housing market crash, the number of reverse mortgages issued peaked at around 110,000 per year, causing problems for many borrowers. Because of their financial situation, a lot of people couldn’t keep up with taxes, insurance, and home maintenance. Since most people borrowed the entire available credit amount in a lump sum, they spent the money quickly and were left with no other assets, which led to foreclosures.
For decades, reverse mortgages were one of the only options available for people who wanted to access their home’s equity without moving out of their house. Thanks to some positive innovation in the real estate industry, there’s now a better alternative that allows people to access 100% of their home’s value in debt-free cash.
Sale-leasebacks, a financial transaction where an owner of an asset sells it and then leases it back from the new owner, is a tried-and-true financial instrument. Although sale-leasebacks are relatively new to the residential real estate space, they have a long history of utilization in the commercial real estate industry. Large companies looking to improve liquidity and reduce the risk of holding too much debt often utilize sale-leasebacks.
Many people think sale-leasebacks are reverse mortgages, which is understandable but incorrect. While both help people who have large amounts of equity tied up in their home access that equity without selling their home, that’s where the similarities stop. To understand what’s right for you, it’s helpful to understand the nuances of how the two differ.
A reverse mortgage is a complex cash loan for only a fraction of your home’s value, with the remainder held to cover loan interest, mortgage insurance, and fees. Sale-leasebacks consists of two simple transactions: a house sale and a lease agreement.
With a reverse mortgage, you will typically have access to only about 40-60% of your home’s value in cash, depending on a set of complex factors including your age, home value, and interest rate. On top of that, fees are generally ~10% of unlocked cash. With a sale-leaseback, you can turn 100% of your home’s equity into cash, minus a 5% fee, meaning you have more of your money available to spend on what matters most to you.
A reverse mortgage is a loan against the value of your house, meaning the borrowed money must be repaid when you leave your home. Since a reverse mortgage is a debt, it weighs on your credit, making it more difficult to get additional credit if needed. Sale-leasebacks require taking on no debt. The money is all yours, so there is no growing loan interest or repayment obligation weighing on your credit, which means you have greater financial and lifestyle freedom.
In a reverse mortgage agreement, you are still responsible for things like home maintenance, taxes and insurance, as you hold the title of your home and are responsible for maintaining it physically and financially—or risk foreclosure. When you take advantage of Truehold’s sale-leaseback option, we take care of all the maintenance, taxes and insurance for you as part of monthly rent which means you can live easier at home.
At Truehold, we believe staying in your home as you get older can result in greater financial, physical, and mental wellbeing. A sale-leaseback might be right for you if you want to capitalize on the wealth you’ve built in your home and maximize your returns, you desire financial and lifestyle flexibility and freedom to live where and how you want, and if you want to keep enjoying your home without worrying about the maintenance or the burden it’s creating for your loved ones.