Reverse Mortgage vs. Refinancing: Which Is Better for Funding Home Care?

If you've started looking into ways to use your home to fund home care, you've probably run into two terms: reverse mortgage and refinancing. Both can put money in your hands without requiring you to sell your home. But they work very differently, and what fits one family's situation may not fit another's.

Here's a plain-language breakdown of how each one works, who they tend to suit, and how to start figuring out which might be right for you.

What is a reverse mortgage?

A reverse mortgage lets eligible homeowners aged 55 and older borrow against the value of their home without making monthly mortgage payments. The loan is repaid when the home is sold, the owner moves out, or passes away.

The main appeal is the absence of monthly payments. For homeowners on a fixed income or pension, not adding a monthly payment to their budget is a significant advantage.
There are limits to how much you can borrow, and the amount depends on your age, the value of your home, and the lender. The older you are, the more you may be able to access.

What is refinancing?

Refinancing means replacing your existing mortgage with a new one, usually with different terms. One of the ways people refinance is to access the equity they've built up in their home as a lump sum or through a home equity line of credit (HELOC).

With a refinance, you continue making monthly mortgage payments. The benefit is that you typically have access to more of your home's equity than a reverse mortgage allows, and interest rates are generally lower.

How they compare

Here's a side-by-side look at the key differences:

• Monthly payments: Reverse mortgage has none. Refinancing requires continued monthly payments.
• Age requirement: Reverse mortgages require both homeowners to be 55 or older. Refinancing has no age restriction.
• Amount available: Refinancing typically allows access to more of your home's equity.
• Interest rates: Refinancing rates are generally lower.
• Best for: Reverse mortgages suit retirees on fixed incomes who can't take on new monthly payments. Refinancing suits homeowners with income who want to maximize what they can access.

Which one might be right for your family?

There's no single answer, and the right choice depends on:

• The ages of both homeowners
• Whether there's still income coming in to support monthly payments
• How much equity is in the home
• How much funding is needed, and over what period of time

Both products are legitimate tools, and a licensed mortgage broker can look at your specific numbers and tell you which one, if either, makes sense for your situation.

Reach out to Ken Tucker to talk through the options for your family. With 25 years of experience across all types of mortgage products, Ken will give you an honest picture of what's available and what fits.
Book a free call here or call 416-988-5626.