Tom MacDonald - Reverse Mortgage Consultant

     

 

 

 

 

       Reverse Mortgage Consultant

      Tom MacDonald

 

       707-265-6385      800-801-5727   The Best Reverse Mortgage Website in the U.S.*

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Reverse Mortgage Alternatives

There are a number of alternatives to Reverse Mortgages to consider.  Like most things, there are pros and cons.

 

Choice

Description

Pros

Cons

Credit Cards

Unsecured credit accessible with a plastic card.

The interest rate may be fixed or variable.

Usually one of the highest interest rate choices.

· Short term

· No closing costs

· Unsecured

·Usually high interest rate.

· Usually low dollar amount.

· May have annual fee.

· Based on your credit scores and income versus debt.

· Monthly payments

Personal Line of Credit

Unsecured credit accessible in different formats such as a phone call, online transfer, checks or plastic.

The interest rate may be fixed or variable.

Usually with a high interest rate.

· Short term

· No closing costs

· Unsecured

· Usually an interest rate between credit cards and an EquityLine

· May have annual fee.

· Based on your credit scores and income versus debt.

· Monthly payments

Personal Loan

An unsecured loan usually with a fixed interest rate and fixed payment.

Usually with a high interest rate.

· Short term

· Usually no closing costs

· Unsecured

 

· Usually high interest rate.

· May have annual fee.

· Based on your credit scores and income versus debt.

· Monthly payments

EquityLine

A line of credit secured by the home with a variable rate of interest.  Interest only is usually the minimum payment.  Usually the least expensive loan.

· Low interest rate

· Usually tax deductible.

· Usually no closing costs.

· May have annual fee.

· Based on your credit scores and income versus debt.

· Secured by home.

· Monthly payments

· May be terminated by the lender

· May have line frozen or reduced by the lender.

EquityLoan

A loan secured by the home with a fixed interest rate and fixed payment.  Usually one of the least expensive forms of loans although the rate of interest is usually higher than an EquityLine.

· Moderate interest rate.

· Usually tax deductible.

· Usually no closing costs

 

· May have annual fee.

· Based on your credit scores and income versus debt.

· Secured by home.

· Monthly payments

 

 

Choice

Description

Pros

Cons

Refinance

Paying off previous loans on the home.  May also involve putting a mortgage on a home that previously did not have a mortgage.  Possible to take extra cash out.

· Low to moderate interest rate

· Rate may be fixed over a long period.

 

· Closing costs

· Secured by home.

· Based on your credit scores and income versus debt.

· Monthly payments

Spend Principle of Investments

Use the principle of funds that may be used to provide current income in order to have enough money now to live on.

· Liquidation of some assets may have no cost. (Such as savings and CDs that mature, )

· Don’t have to borrow.

· Can’t take it with you.

 

· There may be selling fees such as brokerage fees.

· Liquidation of some assets may have a cost such as capital gains.

· Tax deferred assets such as IRAs may have significant taxes.

· Assets that provided income will no longer be there.

· Assets that could grow in value will no longer be there.

· A ‘stepped up cost basis’ usually available to heirs upon death of the owner may be lost.

Sell and buy elsewhere

Sell the home you live in now and buy a less expensive home.

· May have cash left over.

· A good opportunity to get rid of all that ‘stuff’.

 

· High closing costs to sell and buy.

· Possible capital gains

· You may not like the new location.

· You may be moving from friends.

Sell and rent elsewhere

Sell the home you live in now and rent a less expensive place.

· Will likely have cash left over.

 

· High closing cost.

· Monthly rent payment that is likely to rise over time.

· Possible capital gains

· You may not like the new location.

· You may be moving from friends.

Get a Job Get a full or part-time job.  Either something to make ends meet or one to build up excess funds for the future. May help you avoid worse possibilities.
May actually gain some satisfaction by finding a job you like.
Probably not what you had in mind at this point in your life.
May not be hired.
May have a disability that prevents you from going back to work.
Become Self-Employed Start a simple business with low overhead.  Perhaps Internet based.  See AARP's article Earn Extra Money Fast for ideas. May be able to set your own hours. 
May provide income into later life even longer than you had thought possible.
May be able to work from home.
May not have the skills necessary or unable to develop new skills.
May not have even the minimal capital needed to get started.
No monthly payment loan from a city or county. There are many cities or counties that offer a small loan (like a reverse mortgage) that usual has a special purpose and/or a relatively (compared to the HECM reverse mortgage) low dollar amount. 
Most often they are for adding modifications to the home such as wheelchair ramps, hand holds, step in bath tub and such.
Check with a local senior center for your local contact or city or county office to get pointed in the right direction.
Usually a nominal interest rate.
Usually no payments.  The amount is due when you no longer live in the home with interest accruing over time (very much like a reverse mortgage).
Low fees.
The use may be specific.
The dollar amount may be relatively low - perhaps in the $20,000 range.

Reverse Mortgage Pros and Cons

Choice

Description

Pros

Cons

Reverse Mortgage

A loan secured by the home.  Qualifying does not require good credit or income.  Minimum qualifying is:

All homeowners must be 62+

Own their own home

It must be their primary residence

· No monthly payments

· Payoff other debt

· May have growing line of credit.

· Borrower never has to pay back more than the value of the house.

· Costs paid for through the loan

· Don’t have to sell the home to afford to live

· May be able to stay in the home rather than move to a nursing home

· Loan not payable until all homeowners move, sell or pass away.

· No personal liability.

· Closing Costs are sometimes high but not always.

· Compounding interest

 

 

The Pros and Cons of doing a Reverse Mortgage now or waiting until you are older:

See my Now or Later page for discussions on waiting.

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