Increasingly the family home is being considered a critical part of your retirement planning. Many retirees are sitting on a tax free investment worth hundreds of thousands of dollars. And while it is providing you a place to live there is also a cost. Many retirees would benefit by being able to access the equity in their home to use as income to fund their retirement.
The most obvious option is to sell the property but then you need to find another place to live. You could downsize into a smaller and less expensive home or condo and this would allow you to use some of the equity as income. This would also save on some of the ongoing expenses like utilities, property taxes and maintenance. The equity leftover could be used to pay ongoing living expenses or invested to produce a monthly income.
Another option to borrow against the property using a traditional mortgage or a Home Equity Line of Credit (HELOC). The downside here is two things. Your ability to borrow is based on your ability to repay the mortgage or at least pay the monthly interest. Your current income may limit your ability to borrow.
Another option and one that is growing in popularity is a Reverse Mortgage. Previously considered as an option of last resort, the reverse mortgage product has evolved. For certain people it’s an effective option to produce retirement income while allowing you to remain in your home. Depending on your age you can borrow between 10%-50% of your properties current value. People as young as 55 can qualify and the older you are the more you can borrow.
No monthly payments are required as long as you live in the house. The debt is only repaid upon your passing or if you decide to sell. The money you receive is non-taxable and can be taken as a lump sum payment or as a monthly source of income. To qualify there is no credit check or income verification. It’s based on age and property value. The interest rate can be as low as prime + 1.25%.
A very interesting new feature is they can now be used as part of a purchase. Let’s look at a situation where you are selling your $400,000 home and downsizing to a $200,000 condo. Assume you can qualify for a 25% reverse mortgage ($50,000), you pay $150,000 in cash. You now own the condo with no payments and have $250,000 left over to invest to produce a monthly income.
If you currently own a home there are now multiple options of how your home can be used to produce income. There is no need to have your retirement suffer because you have equity trapped in your home.
Looking to sell your home? Give me a call today.
Roy Thomas SRES® (Senior’s Real Estate Specialist) is a REALTOR® with Sutton Group Professional Realty. Since 1991, Roy specializes in helping retirees with their later in life real estate transactions. Call Roy at 902-497-3031 or contact Roy here
