After reaching the age of 62 (senior citizen), you will be able to take a special loan against your home equity. This is called a reverse mortgage where you can get a regular payment by encashing your home. You'll be getting the fixed monthly payment or line of credit until the end of loan term. Loan repayment will be deferred unless you will decide to sell the house after a period for any logical reason. Being delinquent on property taxes may be another reason when you have to payback the loan. If you die within the loan term or after, the property will be sold at market value and the loan will be paid back. If you are getting a higher sell price than the loan amount, the excess amount will be transferred to you or your heir.
Home equity loans or reverse mortgage can be very complicated if you do not follow all the right process. Somehow it also puts a pressure on your heir/heirs after your death as the bank or lender will be selling your residence. It requires proper attention and supervision to maintain the rights of the heir or the surviving family.
So, if you do not want to handle those problems at this time and want other ways rather than opting reverse mortgage, have a quick look at given below alternatives.
1. Refinance
Refinance would be the best option of all. If you refinance your continuing home loan, you'll have these benefits:
a. You'll save a pretty decent amount of cash, if you refinance your mortgage and lower your monthly payments.
b. It will lower your interest rate so you can save money over the life of the loan. You can pay up the loan easily and build equity in your home faster.
c. If you choose refinance option rather than a reverse mortgage, after the payment is done, your property remains yours as an asset.
2. Home Equity Line of Credit (HELOC)
If you opt for the home equity line of credit, or HELOC, you'll get some special benefits. These are given below :
a. It will give you the opportunity to take a loan up to your granted credit limit.
b. You only have to pay interest for the amount you withdraw, not for the total approved amount.
c. As it is an adjustable loan, your monthly interest amount will fluctuate as per the changing interest rates.
The interest payable towards the loan is tax deductible up to $100,000. If you fail to pay the monthly payments on time, you may have to face the consequences, that is, foreclosure.
3. Home-Equity Loan
You can choose a home-equity loan as an alternative to reverse mortgage. It is a fixed rate loan which is a safe option from future rising interest rates. You can borrow a single lump-sum payment by using your home's current equity. There is a limitation that you further cannot get any more money from the house. The interest rate is quite higher than HELOC and the interest is tax deductible up to $100,000. By selecting this option, your ownership remains intact upon your house. There is chance of foreclosure if you do not pay your monthly payments on time as this type of loan keeps your home as a collateral.
The stated above options are quite successful for the senior citizens who want to retain their homes after repayment. Apart from that, if you are willing to let go of the house, selling your home would be another good choice for you. You can sell your property to an outsider or you can sell it to your family member. It will be helpful for you to access the equity you have built. You can sell proceeds to buy a small new home or you might choose to be a tenant.
If you sell your home to your children, then you have the option to lease it back. That means, you will be selling the house to them and use the sell amount to rent it. By this way your children will get the rental income and they can bear the cost of taxes, insurance and depreciation. Before selling your home to your children, you must consult a qualified tax specialist or attorney for a hassle free contract.