Owning a home has its benefits—more space, flexibility, and autonomy are just a few. What’s another great asset? Equity. When you have equity in a home, you can borrow against it. There are several ways to do that, including 澳洲幸运5官方开奖结果体彩网:refinancing. If you’re over the age of 62, you can also take out a 澳洲幸运5官方开奖结果体彩网:reverse mortgage. But w🍒hich choice is right for you? Refinancing is typically the cheaper option, but a reverse mortꦡgage may make sense in certain circumstances.

How a Reverse Mortgage Works

Unlike a traditional mortgage, a 澳洲幸运5官方开奖结果体彩网:reverse mortgage pays you by using the equity you’ve accrued over years of mortgage payments. Money can be received in a lump sum, a line of credit, or monthly payments. These mortgages are available only to seniors over the age of 62 who have significant equity available—generally around 50%.

There are three types of reverse mortgages: 澳洲幸运5官方开奖结果体彩网:home equity conversion ♒mortgages (HECMs), which are insured by the 澳洲幸运5官方开奖结果体彩网:Fede𝓀ral Hou🐟sing Administration (FHA); 澳洲幸运5官方开奖结果体彩网:proprietary reverse mortgages, offered by private lenders; and 澳洲幸运5官方开奖结果体彩网:single-purpose reverse mortgages, which are typically offered by state and local governments 𒁃and nonprofits.

What Is a Refinance?

Refinancing means taking out a new loan to pay off your old one. It’s a wa🦩y for homeowners to access lower rates or paymentജs by taking out a new loan to pay for the existing loan. Refinancing can save significant money over the long run when interest rates are low.

Many people also refinance to change their loan terms by switching to either a fixed-rat🔯e loan or 🌱an adjustable-rate loan. Increasing or decreasing the amount of time on the loan is also possible. These actions may reduce your monthly payment depending on your unique financial situation.

Pros of Reverse Mortgages

Many seniors consider reverse mortgages as a way to add cash flow to their monthly budget. If this is the case, then a reverse mortgage has mo🔯re potential. While a refinance may lower your monthly costs, it may not reduce your payment enough to impact your monthly budget significantly.

Reverse mortgages also offer the ability to make money in a lump sum, which can be very usꦏeful for home repairs or consolidating other debt. A traditional refinance will only lower the amount that you pay monthly or change the loan term. A cash-out refinance would be necessary toꦓ receive actual cash to use as you please.

Cons of Reverse Mortgages

꧑The biggest drawback of a reverse mortgage is depleting your equity with every monthly payment. If you have no plans for your home in the long run, this may not be a significant🔯 concern. If you want to leave your home to your children as an inheritance, you’ll be gutting the value of the gift.

When comparing the costs of each tool, reverse mortgages also tend to be more expensive. Since they are non-recourse loans, the FHA requires 澳洲幸运5官方开奖结果体彩网:up-front mortgage insurance premiums of 2% of the total borrowed and an additional 0.5% 澳洲幸运5官方开奖结果体彩网:mortgage insurance premium each year. This 0.5% is based on the amount borrowed. If there is adequate equity for a home being refinanced, then mortgage insurance isn’t necessary.

Pros of Refinancing

Refinancing is typically a cheaper option for most people in the long term. It doesn't require a counseling session (which averages $125 per session) like a reverse mortgage does. Interest ra🌄tes tend to be lower🔯 for refinancing as well. You’ll also save on mortgage insurance premiums.

You will still pay the bank but build equity in your home ins🐼tead of depleting it. Continuing to build equity means you’ll reap more profit when you’re ready tꦑo sell the house or pass it on to your heirs.

A refinance also puts your spouse in less peril of homelessness if you’re married. If you open a reverse mortgage alone, then the non-borrowing spouse may have to vacate the residence if you move to long-term care. Laws are gradually changing to protect against this, but it’s something to think about.

Cons of Refinancing

If eliminating mont🅠hly payments is your goal, then refinancing is not for you. You will likely save money in the long run, but you’ll still make monthly payments to the ban🍸k, although they may be smaller.

If you need cash for home improvements or to pay 澳洲幸运5官方开奖结果体彩网:property taxes—two common reasons for a reverse mor𝓡tgage—then a cash-out refinance would be a better choice. You can take advantage of a lower interꦬest rate or a shorter loan term and take out cash in a lump sum for project costs.

The Bottom Line

If your financial situation allows you to refinance your home instead of taking out a reverse mortgage, a refinance is almost always cheaper. It also allows you to continue building equity so that when you do decide to sel🔜l, you get much more of the profits from the house.

However, a reverse mortgage is a valid option if you need to eliminate monthly payments for your budget to work. Consider your goals carefully before making a decision.