Deciding Between Cash-Out Refinance vs. Reverse Mortgages
When you’re a senior citizen, you have a lot of options for your home equity. Two popular ones are cash-out refinances and reverse mortgages. Here are some considerations for each option.
Cash-Out Refinance
With a cash-out refinance, you replace your current mortgage with a new one for more than you owe on your home. The difference goes to you in cash. You can use the cash however you want.
Advantages
-You can lower your interest rate if rates have gone up since you got your original mortgage.
-You can extend the term of your loan, which can lower your monthly payments.
-You can get rid of private mortgage insurance (PMI) if you have it.
Disadvantages
-You have to pay closing costs again, including appraisal fees, lender fees, title insurance and other costs.
-You may end up with a higher interest rate than your current mortgage if rates have gone down since you got your original mortgage.
-You could end up owing more than your home is worth if property values have decreased in your area.
Reverse Mortgage
With a reverse mortgage, you borrow money against the value of your home. The money doesn’t have to be repaid until you die, sell your home or no longer live there as your primary residence.
Advantages
-You don’t have to make monthly payments.
-The loan is federally insured.
-You can use the money however you want.
Disadvantages
-You may owe more than your home is worth if property values decrease.
-Your heirs may have to sell your home to repay the loan when you die.
-You could lose your home if you don’t pay your property taxes or homeowners insurance or if you don’t live in the home as your primary residence.
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