With the volatility of the markets (money market, stock market, mutual funds, retirement accounts, 401ks and IRAs) Americans are asking themselves some hard questions these days about their preparedness for retirement. One of the main sources of equity in many households- especially older and lower income people- is their home. Can older homeowners use home equity to help finance their retirement? It all shakes down to 3 things…
1) the value of the home;
2) the amount of debt on the home and
3) other sources of retirement income.
Dealing with this question, the Urban Institute recently did a study trying to understand how home equity varies today compared to before the recession and the housing bubble. Using the study’s findings- the average elderly homeowner grew from $117,000 to $166,000 between 200- 2006. As of 2012- however, that equity has fallen to $129,000. The good news for today’s senior citizen- that value is once again on the rise. So in the next few years, a home equity line of credit (HELOC) or cash out refinance or second mortgage might be a good idea. Along those lines- with housing supply being so low and the demand being on the rise- maybe selling your home and banking the profit might be one of your options.
Once a senior homeowner has established the value of the home- look at all outstanding debt on the home and decide if there is enough equity to offset the costs of selling AND relocating or refinancing. Talk to your lender about the possibility of a reverse mortgage.
A reverse mortgage or home equity conversion mortgage (HECM) is a type of home loan for older homeowners (62 years or older) that requires no monthly mortgage payments. Borrowers are still responsible for property taxes and homeowner’s insurance.
With a reverse mortgage- instead of making payments- the home makes payments to you (through your lender) – and you can’t outlive your equity. Details are available on the HUD website http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmabou
As any competent financial planner will tell you, retirement planning should be diverse, and started at an early age. The sooner the better! And don’t rely solely on Social Security- as it was never meant to be the primary source of retirement income. But one of the most overlooked sources of investment that can be converted to retirement income- real estate remains one of the best deals out there for managers and accumulators of wealth. I’m not just referring to income producing real estate- such as rental property; but what I’m specifically referring to today is your primary residence.
Retirees- and those closing in on those retirement years- keep your eyes on maintaining your home and retaining equity. It’s about being mindful and fully aware of your options for unlocking the potential for you residence to provide for you in your retirement years.
Working age Americans- real estate remains one of the most stable forms of wealth building that there is. Buying land and watching it grow, buying rental property and watching other people pay it off for you and owning your own home and providing shelter while building net worth are all good reasons to pay close attention to the real estate market and to establish a good working relationship with a working REALTOR®.
“If you don’t design your own life plan, chances are you’ll fall into someone else’s plan. And guess what they have planned for you? Not much.”
– Jim Rohn