Homeowners are given plenty of options when it comes to capitalizing on their property investment in retirement. Options include HELOC’s (Home Equity Line of Credit,) reverse mortgages, and now sale and leaseback. Let’s compare and contrast these different options.
Home Equity Line of Credit
HELOC’s are notably riskier than the other options. They involve putting your home up as collateral and are similar to taking out a second mortgage. Because of the risk factor they are mostly only used in emergencies are generally avoided by homeowners.
Sale & Leaseback
The process of a sale and leaseback agreement is mainly what it sounds like. You sell your home and continue to live in it on a rental basis. This arrangement can be beneficial because it provides the homeowner with a lump sum profit without having to move out of their home. On the other hand, there are some drawbacks as the resident is no longer the homeowner and loses control over changes to the property.
When to Sale & Leaseback
This choice is ideal for homeowners who aren’t interested in making any future changes to the property and are financially secure enough to make consistent rental payments. It is also an excellent option if you’re considering moving at any point in the future since you would be signing away the ownership of the property.
Reverse Mortgage
Reverse mortgages involve more freedom and certainty than a sale and leaseback arrangement. The homeowner retains their rights to the property and can never be forced to leave. The process involves receiving a tax-free loan that is paid off when your home is sold. There are no payments required until you move, sell, or pass away. The interest applied to the loan can never increase to a point where the loan balance exceeds the value of the property, this way there is no possibility of leaving behind debt for heirs from the reverse mortgage.
When to Get a Reverse Mortgage
It is most beneficial to a homeowner to be certain that they want to stay in their current home when getting a reverse mortgage. Moving could become difficult because it would require paying off the loan balance as well as the costs associated with finding a new residence. As part of the reverse mortgage application process it is required that the homeowner seek legal advice to establish whether or not they would benefit from the loan. This contributes to the security and peace of mind of the homeowner and helps to ensure that their best interests are kept as the highest priority in the reverse mortgage process. While a sale and leaseback is an option for seniors who plan to move, it is a risky financial move otherwise. A reverse mortgage is the plan of choice for seniors who wish to stay in their home without making monthly payments.