What Is a Reverse Mortgage and How Can I Use It to Improve My Home?

Home improvements are great for you and your property, but they don’t come cheap. What options do you have to pay for improvements on your home if you don’t have cash right now? 

For some homeowners, a reverse mortgage may be the best way to tap into cash to make necessary home improvements. 

What Is a Reverse Mortgage? 

A standard mortgage allows you to borrow money to purchase a home, so what is a reverse mortgage? This is a loan that tacks onto your original mortgage, allowing you to borrow against the equity you own in your home, even if you don’t own your home outright. 

With a reverse mortgage, you’re essentially selling a portion of your home equity back to the lender in exchange for cash now. This will be repaid in your normal home mortgage, extending the repayment period and changing up the terms of the loan. 

To be eligible for a reverse mortgage, you need to be at least 62, own at least 50% equity in your home which you are a primary resident of, and have your home in good condition. It’s meant to help those with fewer income sources to keep their retirement income intact without making huge quality-of-life sacrifices. 

Anyone who’s not eligible for a reverse mortgage may be able to use a home equity loan, home equity line of credit (HELOC), or a cash-out refinance instead. 

Using a Reverse Mortgage on Your Home 

What can you actually use a reverse mortgage for in your home? There are so many options, but here are some of the main ways to use the money. 

Renovating or Remodeling 

Owning a house doesn’t always mean you can afford to fix it up, even if you have very little debt left on your mortgage. When you need to do some renovations to upgrade your home, a reverse mortgage is a great source of financing.

Instead of having to find cash to pay out of pocket, you’ll be able to finance the renovations and pay for them with your normal monthly mortgage payments. This is helpful if you’re on a fixed income or you have difficulty saving money for any other reason. 

Make sure you consider this decision carefully. Renovating your home can be a fantastic upgrade to your quality of life, but it should only be done if you can manage the payments and handle the new terms of the loan. Because renovations won’t make a direct impact on your finances, you need to consider this choice carefully to see if it’s worth the cost to you or not. 

Pre-sale Improvements 

If you’re planning on selling your home and you want to make some improvements to boost the home value first, this is a great opportunity to use a reverse mortgage. Since this loan type adds to your mortgage, it’s a good idea to use it on something that will generate value quickly and help you pay off your mortgage with more left over. 

Make sure you do the math on any upgrades before you go through with them. Speak to a few reliable local realtors and check the stats for homes selling in your area. Look for improvements that will make the biggest impact on the price of your home without costing too much. If it costs more to make the upgrades than you’re likely to get back in the sale, it may not be worth it. 

The other improvements you should consider making are improvements to the house that will make it saleable. If your home is in bad shape or has any particularly broken-down sections, it may be difficult to find a buyer. In this case, improvements may be worth it even if they don’t have a huge impact on the sale price of the home. 

Accessibility Upgrades 

As you age, your needs may change. While your home may have suited you well at one point, it may not be fully equipped to handle your needs now. Upgrading the accessibility of your home makes it more livable now and more flexible for future improvements. 

Common accessibility upgrades people make include widening doorways, installing chairlifts, and making bathrooms more accessible for mobility devices and assistance. While these don’t sound like the most impressive upgrades, they’ll make a measurable difference in your quality of life going into the future. Accessibility is good for everyone and can also increase the value of your home if you choose to sell it later on. 

Repairs and Maintenance 

If your home is in need of significant repairs like a roof replacement or new floors, your reverse mortgage can be used to make this happen. Some repairs can’t be put off forever while you save up to afford them. If you need cash quickly to fix up your home, a reverse mortgage could be a great lifeline for you. 

Conclusion

A reverse mortgage can make it easy for you to access much-needed cash to use on your home. It’s not the best choice for everyone, but it can be a perfect option for some who are eligible for it.