In this article, we will be analyzing the differences between a reverse mortgage and a residential leaseback. We will define both scenarios and allow you to understand which is a better option for you.
Before looking at the downside of a reverse mortgage, it´s important to understand what type of loan it really is. A reverse mortgage is a loan available only to homeowners that are 62 years or older, it allows them to convert a part of the equity they have on their property into cash, without having to sell the house or pay additional money monthly.
Sounds good, right? But hold on for a second, this is not for everybody, and it might not be right for you. With a reverse mortgage, you tap into the equity of your property to take out a loan, meaning that if you want to leave your home to a family member, taking out a reverse mortgage could complicate matters. For example, if the borrower dies, moves out, or sells the house, the loan becomes due immediately; or if you live with other people who are not on the loan papers, they could be homeless after your death. Also, with this kind of loan, you will be dealing with hefty fees and high-interest rates that will take most of your equity (More information in Sell2rent.com).
With that in mind, you may be asking yourself what other options do you have if you are going through financial trouble or you need to cash out your home equity. Maybe you should start thinking about the Leaseback model, which will allow you to sell your property, cash out your equity, and stay home without moving out.
Unlike the reverse mortgage, with a Leaseback you get numerous advantages most of them related to the financial side of the business (FAQs):
- By selling your property and leasing it back you get the capital and the liquidity that is tied up in your house, that means you can get access to 100% of the equity that you have in your property immediately.
- After selling and leasing back your property you keep control of your home. Although you have now, a lease agreement, you will be living in the same place, and keep the lifestyle you had before selling intact.
- Even though, after selling your property and renting it back you are living in the same property you previously owned, you won´t have to worry about maintenance issues, or any repairs that may appear in the future as they will be the new owner´s responsibility.
So, what option is better? A reverse mortgage or a residential leaseback? Both types of transactions will allow you to take advantage of the equity you have in your property, but with different characteristics, payments, and different long-term implications. If you are suffering financial difficulties, maybe because of a job loss or any other circumstances, selling your house and staying there as a renter, will give you a sense of continuity in times of uncertainty, will make you feel more comfortable, more secure and will definitely make you feel at home.