4 Financing Options for Seniors

• (Photo : Andrea Piacquadio from Pexels)

Many retired senior citizens have a fixed income to handle their everyday needs. However, circumstances might occur where a fixed income might be unable to sort out a current need. In such cases, senior citizens have resorted to looking into financing options. Not all financing options are great for retirees. 

The best loans for senior citizens are affordable, easy to pay off, and will not lead to more debt. Here are some great financing options for seniors.

Reverse Mortgage

For retired homeowners looking for financing options, a reverse mortgage is one of the most convenient ways to raise money. This type of loan has very low interest rates, much lower than taking out a second mortgage or getting a private equity loan. Generally, many reverse mortgage providers give loans worth up to 40-60% of your home value. The amount you get may depend on your age and the current interest rates. One can easily calculate this amount using a reverse mortgage calculator.

To get a reverse mortgage, you'll need to own a home. This home must be your primary residence and must be your primary residence. When your reverse mortgage is approved, you can access a portion of the equity in your home. The amount given will be tax-free. You will only make monthly repayments on the loan if you choose to voluntarily. Repayments on this type of loan are put off until the homeowner passes. However, the borrower can pay off the loan at any time.  

Requirements for Reverse Mortgages

Generally, reverse mortgages have some basic requirements, they include:

● The borrower must be at least 62 years old and must pass financial assessment guidelines

● You must live in the home as your primary residence

● The borrower must take part in a counseling course approved by the HUD. This could be done either in person or over the phone.

● The home in question can either be an approved condo unit, a single-family home, a townhouse, or a 2-4-unit home occupied by the owner.

● After taking out a reverse mortgage, the homeowner still pays property taxes, insurance costs, and any other costs incurred from living in the home.

● Reverse mortgages may require the borrower to make some upfront payments, including insurance premiums and closing costs.

Reverse mortgages are not suited for everyone. Retired homeowners who are still below 60 may benefit from other types of financing. Likewise, retirees who do not own a home could consider different options for financing. 

Personal loans

Depending on certain factors such as your income, credit score, lender, and other essential factors, you may be able to get a personal loan with great interest rates. The term of your loan could be up to 5 years. You'll be expected to repay monthly until your loan is paid off. Personal loans are not recommended for seniors with high debt, low income, and low credit scores.

Lines of credit

Lines of credit are flexible financing options typically offered by financial institutions. The bank or lending institution approves an amount of money for you. This amount can be accessed when needed to use as you wish. You'll also be allowed to repay the money immediately or over a long term.  

Lines of credit also come with interest payments. To get approved for a LOC, the bank would consider some critical financial factors, such as your creditworthiness and relationship with the bank. LOCs also typically come with variable interest rates, meaning that at the time of total repayment, the LOC may cost much more than planned.  

One of the best LOC options for retirees is the Home Equity Lines of Credit (HELOC). This type of financing is secured using your home as security. They typically offer the lowest closing costs. However, most HELOC loans have adjustable rates, making them unsuitable for seniors on fixed incomes. Some senior citizens may be turned down for a LOC due to their current debts, income, or credit score. Tip: See 6 Disadvantages of a HELOC here. 

Home equity loans or Second and Third mortgages

The equity in your home can be determined by the appraised value of the home, less what you owe currently on the mortgage. One can borrow against this equity, so if you've tried other financing options and are getting turned down due to high debt, poor credit, or low income, you should consider borrowing against your home's equity. Interest rates for these loans could be 8-20%, and you'll be expected to repay monthly.