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Five Alternatives to a Reverse Mortgage

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What mortgage options are available in addition to a reverse mortgage?

alternatives to reverse mortgage

Homeowners who are at least 62 years of age can convert home equity into cash through a reverse mortgage. This allows homeowners to use the equity from their home to obtain a credit line or a fixed monthly payout. Repayment starts once the person moves out, sells the home, is delinquent in paying insurance or taxes, or passes away. Repayment is also deferred unless the house is in bad condition. The house is sold and excess funds after repayment go to the homeowner or the heirs. Are there options in addition to a reverse mortgage to help generate income for older homeowners? The following are alternatives homeowners can use instead of a reverse mortgage.

Refinance the Existing Mortgage

An existing mortgage can be refinanced to reduce the monthly payment and interest rate. Refinancing may also help in building equity for the home quickly and allows the homeowner to retain the house as an asset.

Get a Home Equity Loan

Homeowners can borrow money using the equity on their home through a home equity loan or a second mortgage. The interest is normally tax-deductible for loans of up to $100,000. Since these are fixed-rate loans, the interest may be higher compared to other types of loans. Refinancing allows homeowners to retain the house as an asset.

A Home Equity Line of Credit (HELOC)

A home equity line of credit allows homeowners to borrow an amount to the approved credit limit. Payments are limited to the amount withdrawn by the homeowner. HELOCs can be adjusted and monthly payments are determined by fluctuating interest rates. Interest is normally tax-deductible for loans of up to $100,000. The home continues to be an asset to the homeowner.

Sell the House

The house can be sold so the homeowner can access the equity it created. This is a good option for people who find their existing home to be too big or costly to maintain. The proceeds can be used for purchasing a smaller house and the extra money can be invested or placed in the bank.

Sell the House to Children

Homeowners can sell the house to their children and the proceeds can be used to rent it back from the children. The children also benefit as they receive rental income. A private reverse mortgage can also be used so fees and interest rates stay in the family. The children make the payments for the house and they can recover their investment when they sell the house. However, this situation has some effects on tax and estate planning, and you would require the help of a tax specialist or lawyer.

St. Louis Mortgage Professionals

Homeowners who are short of cash can use a reverse mortgage to generate income. It may be a good choice for people who have a good amount of home equity, but do not earn enough for their retirement.

Call Sean Z Mortgage at (314) 361-9979 to speak with a mortgage specialist.

Paying For College: Refinance Your Home or Use Student Loans?

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Graduation season is just around the corner, and if you are the parent of a senior, then you may already be worrying about the expense of college.

IMG_9425If you have managed to build up equity in your home over the years, then it might make sense for you to tap into it to help with the cost of college. This is not a decision to be made lightly, as you are using an investment that you have worked hard for to now invest in the future of your child.

Explore All Your Options

Before looking at refinancing your home or taking out a home equity loan against it, make sure all other options have been exhausted. Some students may qualify for financial aid or scholarship programs. With the high cost of a college education, even an added boost of $500 a month will be a big help. Ensure that your child has gone over all possibilities of student aid programs with their high school guidance counselor when it comes to paying for higher education.

Federal Student Loans

Federal student loans are also another path you and your family can pursue. Compared with a private student loan, a federally backed loan will usually come with a lower fixed interest rate. In addition, repayment is based on their income and they will have options to postpone payments if necessary without damaging their credit score. You can use this type of loan to cover a portion of the cost and make up the difference from a refinance loan on your house. In this way the debt is split between you and your child, hopefully giving them more incentive to do well in school. Private student loans are not nearly as forgiving and may leave your child with a debt they cannot afford after graduation.

Once you have secured as much funding from outside sources as you can, you can start to consider your homes’ equity to secure the difference. With interest rates still hovering around 4.5% and lower, now is a good time for a refinance loan. All indicators are pointing to that number rising about 4% before the end of 2014.

Refinance, Home Equity Loan, or Home Equity Line of Credit

A cash out first mortgage refinance is the better choice over a home equity loan or a home equity line of credit. The interest rate may be a bit higher than refinancing with no cash out, but it will be significantly lower than a home equity loan. Plus, remember the added benefit of being able to use the interest paid on a refinance as a tax write-off. A home equity line of credit may have an appealing low interest rate, plus the ability to draw from the money as needed, but this type of loan is adjustable. That means that if things go as predicted, your interest rate on that line of credit will jump substantially over the next few years.

This is not a decision to be made lightly, which is why you should be considering your options now before you even see the high school diploma. You can begin taking some steps to further improve on the value of your house, increasing your odds of securing a loan at a reasonable rate. Remember, if you are able to do it, there is no other investment opportunity that is nearly as rewarding as the one you can make in your own child’s future. Call SeanZMortgage at (314) 361-9979.

Photo credit: Chris Campbell via Flickr

Sean Z Team
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