A reverse mortgage is a home loan that is exclusively available to senior homeowners aged 62 and above. It allows them to get extra cash or free up money for living expenses by converting their home equity into cash.
With a reverse mortgage, the borrower is not required to pay any monthly mortgage payments. When the borrower moves out, sells the home, or passes on, the house is sold and that money is used to pay off the reverse mortgage plus accrued interest. Any leftover money goes to the borrower or their heir(s).
While the lack of monthly payments may seem like a great idea, a reverse mortgage is not always the best option for most people, as there are many potential pitfalls and risks associated with this type of mortgage.
As such, seniors living in Lake Havasu and Bullhead City may need to look for other ways to supplement their income after retirement without resorting to a reverse mortgage.
Below are some alternatives to a reverse mortgage:
Refinance An Existing Mortgage
If you are interested in obtaining a reverse mortgage, chances are you already have an existing mortgage. The good news is, if your credit score is good, you may be able to refinance the current loan. This option has several benefits, like the potential for better terms (lower interest rates) and lower monthly payments, among other things.
With lower monthly payments and a decreased interest rate, seniors can free up extra money to supplement their income. The best thing about refinancing is that it’s not limited to seniors only, so other homeowners can also benefit from this option.
However, it is advisable to seek advice from a professional before refinancing to ensure that the new loan provides better terms and rates than your current loan. An experienced Lake Havasu mortgage broker like Mohave Mortgage can help determine the best refinance options for your financial needs and the best time to refinance.
Downsize Your Home
Another option to supplement your income is to downsize your house. Homeowners who don’t need as much space can sell their homes and move into a smaller house or condo that better fits their financial needs and lifestyle.
This option lets homeowners free up money from their existing house to pay for their new residence and still have enough money leftover to supplement their income.
Rent Out Your Space
If you live in a big house with plenty of rooms, why not rent out the space to generate income? By renting out your leftover space or the entire house and moving to a smaller space, you can generate extra cash to cover living costs and other expenses.
Get A Home Equity Loan
A home equity loan may be another option if you have some equity built up in your home. In simple terms, this is like borrowing a second mortgage against the equity in your home.
For this type of loan, the money is disbursed as a lump-sum payment, and you can use it for whatever purpose you want. This makes a home equity loan ideal for individuals who wish to consolidate their debts, pay for home improvement, or get supplemental income for other expenses like paying credit card debt, covering medical costs, or even starting a business.
Apply For A Home Equity Line Of Credit
If you’re looking for a line of credit that offers smaller amounts of cash on an as-needed basis, then a home equity line of credit (HELOC) may be another option to consider. The HELOC is a revolving credit account that you can draw from as long as you keep within certain limits on your credit line.
The main difference between the HELOC and the home equity loan is that with this option, you only pay interest on what’s you have withdrawn and not on the total amount of available credit.
However, keep in mind that HELOCs are categorized as adjustable loans with varying interest rates. This means you can expect your monthly payments to increase or decrease from month to month due to fluctuating interest rates.
While a reverse mortgage may be an excellent option for some people, it is not always the best choice. Several alternatives to a reverse mortgage, like refinancing, offer fewer risks and, in some cases, greater rewards.
As a homeowner, you should do your due diligence before settling on the best option for your current and future financial needs. This means assessing your financial needs, reviewing all available options, and consulting with an expert like Mohave Mortgage to determine the best course of action.
Mohave Mortgage is an award-winning private mortgage company that offers a full range of mortgage services, including conventional loans, FHA loans, VA loans, and refinance loans in Lake Havasu and Bullhead City.
Call us today and let us help you make an educated decision!