Good News! Your home equity might just be a great source to help fund your retirement.
For many Americans, retirement can be a stressful and financially challenging part of life. This is because we typically see a sharp drop in our income once we enter retirement, while expenses remain roughly the same or can even increase, if your medical bills grow, for example.
The good news is many retirees have accumulated quite a lot of wealth which they can free up to make their retirement a more pleasant experience. One popular and particularly effective option is utilizing the equity in your home.
Read on to find out more…
What is Home Equity?
Home equity is the built-up value of your ownership of your home. If you have completely paid off your mortgage or purchased your property outright, then the home equity available to you will be the same as the value of the house.
In many cases, retirees will have a few hundred thousand dollars of home equity which they can unlock and utilize in their retirement in various ways.
How Can I Access This Equity?
There are several ways which you can access the equity of your property. Each has its own pros and cons, and it’s important to consider all the options so you can make an informed decision and decide which, if any, is most suitable for you.
Reverse Mortgage
A reverse mortgage can be a great way to get your hands on some much-needed cash in retirement, which you can either spend over the course of your retirement or invest it in an annuity, so you get regular payments to live off.
A reverse mortgage is simply a type of loan against the value of your home which allows you to unlock the equity value of your property without losing the right to live there. Such mortgages are usually only available to homeowners aged 62 and over, and there are often other requirements and varying terms, so it’s important to read the fine print.
Keep in mind that reverse mortgages aren’t the best solution for every retiree out there, particularly as they can sometimes have fairly hefty fees which can diminish the amount of money you’re able to actually get your hands on.
Downsize
Some retirees have homes that are surplus to their requirements, as they may have extra bedrooms because their kids have now moved out. Selling your home and downsizing can leave you with a considerable amount of cash to either spend or invest.
However, when calculating how much money you can unlock it’s important to take into account admin and other sales/buying fees.
Relocate
Selling your home and relocating to a cheaper area is another way to improve your financial situation in retirement. If you are already considering moving elsewhere to enjoy your retirement, this may just be the perfect solution.
Again, be sure to factor in sales and buying fees so you can accurately calculate the surplus money you’ll be able to generate from relocating.
A Quick Summary
- Retirement can be a financially difficult period for many of us.
- Unlocking the built-up equity in your home can be a great way to improve your finances in your twilight years.
- There are several ways to go about doing this, including a reverse mortgage and downsizing or relocating to a cheaper area.
- Keep in mind that reverse mortgages are usually only available to homeowners aged 62 and above, and they often have other requirements.
- It’s also important to always factor in fees so you can accurately calculate how much equity you’ll actually unlock by taking out a reverse mortgage or by selling your home and buying a cheaper one.