If you’re 62 or older and you own your home, you probably know that a reverse mortgage is one way to tap your home equity—and potentially boost your retirement savings.
The reverse mortgage, which is actually a loan, essentially converts your equity into a lump sum of cash or regular monthly check. You don’t have to pay back the loan: Instead, when you move or die, your home becomes the property of the bank.
If you feel reluctant to take this type of loan, however, you likely have good reason. Reverse mortgages come with high fees, require you to get mandatory financial counseling, and can leave you unable to pass your property to your children after you die.
But recently, a slew of startups and financial firms have cropped up to offer reverse mortgage alternatives. All promise to let you tap your home equity—without incurring debt.
But are these newfangled alternatives to reverse mortgage loans safe—and sensible? Here’s what you need to know.
Selling your future gains
The traditional reverse mortgage is pretty much an all-or-nothing proposition.
But now a growing list of companies—including Equifi, Hometap, Patch, Point,and Unison—let you cash out just a portion of your home’s value (usually up to 20%), in what’s known as a shared equity agreement.
In a shared equity agreement, the company gives you cash in exchange for a portion of the upside in the home’s value.
Under the agreement, the company gives you cash in exchange for…