Reverse mortgages can be a good option for many homeowners. They let you borrow based on the equity in your home. Instead of paying the bank, the bank pays you — tax-free — with a series of payments via a partial lump sum of money or a line of credit.
Under the right circumstances, a reverse mortgage loan might help an elderly person stay at home when retirement money is running out.
Money Talks News founder Stacy Johnson says reverse mortgages can make sense for certain types of people. But they also come with some big disadvantages. For more on the pros and cons of reverse mortgages, check out “Should I Get a Reverse Mortgage?”
If you read that story and decide a reverse mortgage is not for you, it’s probably time to look at other options. If you prefer taking another route, check these alternatives.
If you financed your home a few years ago and your interest rate is higher than current market rates, a mortgage refinance could lower your rate — and your monthly payments. And that could free up cash for your dream renovation.
You might also consider a cash-out refinance to tap some of your home’s equity. Lenders will generally let you borrow enough to pay off your current mortgage and take out more cash, usually up to 80% of your home’s value.
Think carefully before you embark on this type of refinance, though: You’ll be using your home as collateral for a bigger loan, and you’ll be financing short-term costs with long-term debt, which adds interest and other fees to the price of the renovations. In most cases, a cash-out refinance is appropriate only if you’re improving your home in ways that will increase its value.
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