Reverse mortgages are not the only option for retirees looking to enhance their cash flow. Alternatives, like refinancing the existing mortgage, taking out a home-equity loan, or selling the property might help some people reach their goals. Evaluating financial circumstances and retirement objectives can help homeowners determine which route is the best fit.

Refinancing

For homeowners that are struggling with their monthly payments, refinancing is a potential option. Refinancing may allow homeowners to reduce their interest rate and monthly payments. By refinancing, the homeowner also keeps the house as an asset so it can be passed down to beneficiaries.

Home-Equity Loans and Lines of Credit

Home equity loans are leveraged against the equity in the house. These loans are issued as single lump-sum payments and are good for major expenses. The interest payments on these loans are also deductible if the money is used for a qualified purpose. Qualified purposes are uses which buy, build, or improve a residence (i.e., building an addition or repairing a major problem with the house).

Lines of credit are like credit cards which are taken out against the equity in the house. With home equity loans, the homeowner can borrow up to the approved credit limit as needed. The interest homeowners pay on these loans is based only on the amount taken out of the line of credit. Additionally, the payments on HELOCs fluctuate when interest rates change.

Sale of Home

Although refinancing or tapping into a home’s equity with a loan or line of credit will allow homeowners to maintain control of their home, that isn’t always a viable option for retirees looking to relocate or downsize. Homeowners whose properties are too large, cost too much to maintain, or no longer meet their needs can sell their homes to open up some extra cash. The money from the sale can be used to purchase a smaller or less expensive home, save, invest, or spend if needed.

Some homeowners may choose to sell their homes to their children for tax benefits. For example, parents can sell their home to their children and rent it back from them using the proceeds from the sale to pay the rent. The children earn rental income and are able to deduct depreciation, taxes, and maintenance thus receiving tax benefits.