A reverse mortgage may seem like a good way to unlock the equity you’ve built up in your house, but it’s not always the best option.
Pros and cons
Instead of making payments like you would on a regular mortgage, the interest accumulates and the equity in your house declines.
The advantages are:
- You can turn equity in your home into cash
- You still own your home
- You can choose options how to receive your money, either as regular payments or as a lump sum (or a combination of both)
While the pros sound good, there are also many disadvantages:
- The equity in your home will shrink as the interest on the reverse mortgage accumulates
- The interest rate is higher than on a line of credit
- Your estate will have to repay the loan quickly when you pass away
- There are numerous charges associated with a reverse mortgage, such as appraisal, application, closing, and legal fees
- You’ll face a repayment penalty if you sell your house or move out within a three-year period of getting a reverse mortgage
A home equity line of credit (HELOC) can be a better option for many homeowners. Interest rates are much lower on HELOCs than a reverse mortgage (currently as much as 1.5 percentage points lower).
Which term is right for you? Contact me at 416.298.8200 to discuss your situation.