Some personal finance experts regard reverse mortgages as loans of last resort to be used only by seniors facing dire circumstances and who have run out of other options. This may be extreme, but it does beg the question Have reverse mortgage borrowers considered all their options?

It’s probably accurate to say that in many cases, they do not. Reverse mortgages (by law) are available only to senior citizen homeowners age 62 and above.

Marketers can make it appear that reverse mortgages are the single best option designed specifically to meet seniors’ needs. Since most closing costs can be financed as part of the loan, borrowers typically face few out-of-pocket costs for a reverse mortgage (typically the appraisal fee and a credit check to make sure that the borrower is not delinquent on any other federally insured loans).

Some marketers make it appear that a reverse is a low-cost loan when it clearly is not.

But smart consumers need to look past the hype and consider other financial products and strategies that could meet their needs more effectively or efficiently.

This section provides an overview of other strategies you should at least consider before deciding on the reverse mortgage route. All of the ideas presented here have numerous pros and cons that are not addressed here but that you’ll need to carefully consider. The intent is to get you at least thinking about these alternate ideas.

• Sell & Downsize This is the traditional, straightforward way to access your home equity in retirement. Simply sell the 4BR homestead that you raised the family in for $250,000 and purchase a smaller home or condo for $125,000. This frees up $125,000 of tax-free, cash equity for you to invest or use as you please.
• Sell & Rent Sell the house, but instead of buying another, smaller home rent. The benefit here is that you can than invest the entire $250,000 to supplement income.
• Move to a Lower Cost Community Done in conjunction with either of the first two strategies, this move can really stretch your retirement savings - particularly if the home you are selling is in a high-cost metropolitan area.
• Stay & Rent Stay in your home and rent out one or two rooms to provide additional cashflow.
• Stay & Cost Share Stay in your home and invite a trusted friend or relative to live with you and share living costs.
• Stay & Utilize Traditional Home Equity Financing Consider accessing your home equity through a standard home equity loan or home equity line of credit (HELOC). The main benefit compared to a reverse: minimal closing costs and fees. The main drawback compared to a reverse: required monthly payments. This strategy can make good sense:

  If you do not think you’ll stay in your home for at least seven years.

  If you are too young to effectively benefit from a reverse mortgage (see above). A standard home equity loan can be a cost-effective way to bridge the years until you reach you midseventies when a reverse mortgage may make more sense.

  If, after reviewing your finances (see section 4), you anticipate the need for additional income to be relatively short-term (3-5 years).

• Consider Senior Assistance Programs State and local governments commonly offer assistance to senior citizens for purposes such as paying for home improvements or assistance with paying property taxes. These programs may be in the form of low-interest loans or a specialized type of reverse mortgage. For example, in some areas seniors can defer property tax payments until they die or sell their home. For information on these programs, you should contact your local Area Agency on Aging. A nationwide listing of these agencies is available at www.mfaaa.org/AreaAging.aspx.
• Family-Financed Reverse Mortgage Financial dealings between family members are always risky. But if done with everyones full understanding and proper binding documents, this can be a good means to get the benefits of a reverse mortgage and avoid the high closing costs and other drawbacks. In the most straightforward form, children loan funds to their parents with the loan secured by the parent’s home. In addition to avoiding high costs, this strategy has the benefit of allowing loan terms to be tailored specifically to meet the needs of the senior homeowner. This strategy can be particularly useful when a goal is to keep the home in the family.

Family Payment Assurance Many children, of course, do not have the means to serve as a “bank” for their elderly parents. However, it may be possible for them to take on a less onerous financial role and serve as payment backup for their parents in a traditional home equity financing. As noted above, home equity loans and HELOCs are likely the more cost-effective means to tap home equity for shorter periods (e.g. less than seven years). The drawback is that monthly loan payments (interest-only in many cases) are required. Children can provide assurance to their parents that, if needed, they stand ready to assist in making monthly payments.

• Consider Tapping Other Financial Assets Home equity is the main asset of most seniors. But many also own stocks, bonds or other financial assets that could be liquidated or restructured to provide additional income. The advantage is that these assets can be turned into cash much more efficiently than home equity.

Social tagging: Reverse Mortgage Tips

A Few More Related Articles of Interest:

2. How long do I expect to stay in my home?

Is a Reverse Mortgage Right for Me? New Guide Available

The DIY Reverse Mortgage

Reverse Mortgages and Subprimes - Are there Parallels?

RAM - Reverse Annuity Mortgage