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How to Use Your Home Equity During Retirement

How to Use Your Home Equity During Retirement

| September 24, 2021
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Whether you are just now starting to think about retirement or are comfortably living off your pension, it is never too early to think about what to do with your home. Thankfully, you have plenty of options to capitalize on the equity you’ve built over the years. So even if you’ve never made a solid financial plan before, if you own your home, you have assets that can help you make the most of your retirement years. Lifetime Retirement Partners presents some helpful advice that can help you make the most of your own retirement.


Option One: Sell and Move to a Smaller Home


Downsizing is a popular option for seniors. There are many advantages of exiting your large family home and having two or three fewer bedrooms to take care of. The most obvious is the cost. Smaller homes tend to sell for less than bigger houses, and if you have enough equity, you may be able to make a purchase outright.


This takes some research, however, and your first goal is to determine how much similar homes in your area are selling for. Prices vary from market to market, though, and a real estate professional can help you come up with a more accurate figure based on your home’s condition, school zone, and proximity to neighborhood amenities.


Option 2: Take Out a Reverse Mortgage


A reverse mortgage is an intimidating product for seniors who don’t understand the process. Essentially, it is a line of credit or loan provided by a bank or mortgage company based on the amount of equity you have in your primary residence. According to One Reverse Mortgage, this is an excellent path for those who need to plan for now and the future.


One way to use a reverse mortgage is to pay off your current balance and take small payments to supplement your income while you postpone Social Security. You must understand, however, that you have to live on site. If it becomes necessary to move into assisted living, the loan becomes due. If you are unable to repay the money borrowed, your home becomes the property of the lender.


Option 3: Make It a Rental


If you don’t need immediate access to a large sum of equity, you might be able to rent your home out. You can do this as either a long-term rental — where an individual or family moves in for six or 12 months — or as a short-term vacation property. Each of these has pros and cons, and both have the potential to create a steady stream of cash to supplement your retirement goals while building additional equity.


Just remember that you’ll need to spend money on maintenance and upkeep of the property, as well as amenities that can increase the home’s appeal. For instance, modern appliances and home security devices such as outdoor cameras can attract people who want something a little more from their rental property.


Keep in mind that becoming a landlord takes a lot of work, and you have to take a pragmatic approach to rent collection. In other words, you have to be willing to demand payment even when you sympathize with your tenant’s financial situation.


Option 4: Sell, Rent a Condo, and Invest


Investing is not only for twenty-somethings. It is entirely possible to create for yourself a hefty return by taking your home equity in putting it into a smart investment vehicle. This, too, takes research, and, according to Vanguard, you will need to know the amount of money you expect to live off of each year and make choices based on the amount of risk you are willing to incur.


Another option is to keep the property in the family. The drawback here, as illustrated by Mario A. Giovannucci, is that you don’t get to capitalize on your investment. Of course, if your goal is to leave your home as a legacy for your children, this is the way to go.


It is never easy to decide how to handle your biggest investment when you retire, but it is always good to know your options. This quick post is not intended to help you make a decision. Instead, the information presented above can help you open up a conversation with your family, your realtor, and your financial advisor.


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