Comparing reverse mortgages to Home Equity Loans, (HELOC) and alternative financing strategies

A reverse mortgage is a loan that can help retirees access or release the equity out of their home so that they need to live comfortably during their golden years. While there are other ways to get the money you need for retirement, reverse mortgages have a lot of advantages.

Differences Between a Reverse Mortgage and
a Home Equity Line of Credit (HELOC)

When you get a reverse mortgage, you can borrow up to 55% of your home's value in cash, or monthly payments to you, or a little of both, while continuing to live in your own home.

Alternatively, you might apply for a home equity line of credit (HELOC). The equity in your home can be used to obtain cash when you need it. However, there are a few major downsides, especially for the elderly.
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• Since HELOCs necessitate interest payments, the government mandates income stress tests be considered to in order to qualify for a HELOC, which may make it difficult for many retirees to qualify and the amount you can borrow will be tied to your retirement income. Reverse mortgages are different since they don't necessitate monthly payments toward principle or interest and income is not considered in the same way.
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• The bank has the right to demand repayment of the HELOC debt if it rises above a particular threshold. When you get a reverse mortgage, however, you can stay in your house for as long as you desire, regardless of the loan debt or the value of your home.
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• For seniors, the consequences of having a HELOC balance that surpasses the value of the home can be devastating financially. The loan or a portion of the loan would need to be repaid, or possibly force the sale of the home. However, with a Reverse Mortgage, the most you'll ever owe is the current value of your home, which is guaranteed by the lender. This should put your mind at ease.

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Rent vs. Reverse Mortgage

You could sell your house and move into rented accommodation. If you choose this path, you may receive a windfall of equity when you sell your house. Nonetheless, there are drawbacks to consider as well.

The first is the emotional toll of leaving behind familiar surroundings. Most seniors want to remain in their own home for as long as possible. If you love your home, as experts in reverse mortgages, we are going to do our best to help you stay there for as long as possible.

Two, if you sell your house, you won't be a homeowner, but a tenant instead. While some people are fine with the shift, there is a big difference between being a tenant and homeowner. If accessibility in your home is the issue for the move, it might have been easier to utilize a reverse mortgage, stay in your own home and use the funds to make the necessary modifications of accessibility are left frustrated.

Last but not least, and this could be a big one, you will miss out on potential appreciation in house value if you don't own your own home. The notion that the equity in their homes can continue to grow is appealing to many reverse mortgage borrowers.
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Selling off your Investments vs. taking out a Reverse Mortgage

To meet financial obligations, many retirees first liquidate their stock and mutual fund holdings, then consider other alternatives such as reverse mortgages. There's no denying that this is a quick method of getting your hands on some cash, but is it the best one for your needs? It's important to think about things like:
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• Profits obtained from selling investments are often subject to capital gains taxation. Conversely, the money you get from a reverse mortgage won't be subject to taxes.
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• You need to compare the interest rate on a reverse mortgage to the return you could get on the investments you're selling. It costs money to sell an investment portfolio that may bring in annual returns of 10% or more.
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• In many cases, retirees' primary residence is a significant chunk of their total wealth. If you sell off investments, your wealth is more exposed to fluctuations in the real estate market.
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We are happy to work with your financial advisor to discuss the pros and cons of a Reverse Mortgage with  against selling investments to access home equity.

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