Reverse Mortgage vs. Home-Equity Agreement at 70: Which Wins?
A 70-year-old single homeowner weighs two ways to tap home equity. Here's how to think through the tradeoffs.
If you're 70, single, and not entirely sure you'll see 80, the question of what to do with your home equity feels pretty urgent. Two options keep coming up in financial planning circles right now: the reverse mortgage and the home-equity agreement (HEA). Both let you pull cash out of your house without selling it, but they work in very different ways — and the wrong choice could seriously hurt your finances down the road.
A reverse mortgage lets you borrow against your home's value while you keep living there. You don't make monthly payments, but interest keeps piling up, and the loan comes due when you move out, sell, or pass away. It's been around for decades and is federally regulated when it's an FHA-backed Home Equity Conversion Mortgage (HECM). The catch? Fees can be steep, and the growing loan balance chips away at whatever you'd leave behind.
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A home-equity agreement is a newer, trendier option. Instead of a loan, a company gives you cash today in exchange for a slice of your home's future value. There's no interest rate and no monthly payments, but when the agreement ends — usually after 10 to 30 years — the company takes its cut of the appreciated value. If your home skyrockets in price, you could end up giving away a lot more than you expected.
For someone in their early 70s who's thinking realistically about a shorter time horizon, the HEA's long-term equity sharing may matter less than it would for a 55-year-old. But a reverse mortgage's compounding interest can erode your estate quickly too. The right answer really comes down to your health outlook, how much you need, whether you have heirs you care about, and how long you plan to stay in the home.
Before signing anything, talking to a HUD-approved housing counselor is a smart (and for HECMs, actually required) step. Both products have fine print that can surprise you. Continue reading at MarketWatch.com
