Mar 10 2008
Reverse Mortgage Alternatives
There are many seniors over 62 on a fixed income that need more cash for living expenses, have a desire for a better lifestyle or decide that they want to help out a relative. When they tell someone about it, they receive all kinds of advice, some good and some uniformed. Frequently, they choose an alternative to the reverse mortgage without considering all the costs and consequences. In this blog series, we’ll take a look at the most common alternatives to the reverse mortgage.
Selling Your Home
One alternative is to sell the home and move, pocketing the proceeds. A senior could downsize and buy a cheaper home, choose to rent an apartment, or move in with her kids. Seniors may be tempted by the promise of huge sums of cash in exchange for their home and might choose to sell rather than do a reverse mortgage.
But don't make that decision without first adding up all the costs. For the hard costs, you'll generally pay 5-6% of the sale price to real estate agents, you may owe hefty capital gains taxes on the sale, and you'll probably pay professional movers. If you downsize, your next home may have much higher property taxes because it will cost much more than you originally paid for your current home. You may need to spend a lot of money to fix up your existing home in order to sell it and/or to fix your new one to make it livable.
There are also intangible costs to consider. You'll have to find a new home where you will really be satisfied, hire a real estate agent and host open houses, and sort through and move everything that you own. You may also be moving away from all that is familiar such as friends, hospitals, pharmacies, and other services. If you're planning to rent rather than buy another home, you're losing out on future home appreciation and will be paying ever increasing rental rates. As far as moving in with the kids, I think the intangible costs are self-explanatory.
Selling your home may be a better alternative to the reverse mortgage, but make sure to add up the costs first. We’ll evaluate another common alternative tomorrow.
