Reverse Mortgage Versus HELOC for Extra Cash?

Dear Dr. Don,

We own a condo in Florida and a home in Pittsburgh. I just retired at 70 years old, and now money is very tight. Can I qualify for a reverse mortgage on one of my homes? As you know, selling real estate in this market is a problem. I have had our condo on the market for a year now and have had no takers. I'm looking for some advice.

- Bob Bungalow

Dear Bob,

The fact that you own two homes shouldn't be an issue in getting a reverse mortgage. The issue is the reverse mortgage needs to be on your primary residence, and you can't move out of that residence without triggering the payoff of the reverse mortgage.

I'll assume that because it's the Florida condo that's for sale, your primary residence is in Pittsburgh. If you don't own your home free and clear, the first thing you would do with the proceeds of a reverse mortgage is pay off the existing mortgage(s).

If your money issues are a temporary cash-flow crunch while you wait for your condo to sell, then a home equity line of credit, or HELOC, or a home equity loan may be a better solution than a reverse mortgage.

Reverse mortgages have high closing costs, while a home equity loan or a HELOC typically have very low closing costs. A HELOC has interest-only payments for the first few years, and you don't have to borrow the entire credit line at once as you would with a home equity loan.

You say money is tight. How tight? A reverse mortgage could be the equivalent of using a sledgehammer when a hammer would do. Put together a monthly spending plan to see how short you are in your monthly household budget. Realistically look at your options in selling the condo. If you want to hold on until real estate prices improve in Florida, you could be waiting for a while. Renting the unit may be an option, if it's allowed. Compare the costs of keeping the unit over time to the cost of pricing it to the point that it would sell in today's market.

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