Retirement Planning Jan 9, 2025

How to Use Home Equity In Retirement

Retirement is typically a period of finite income. You may be solely reliant on Social Security benefits, or you may have some retirement savings to pull from, but typically, you're no longer bringing in a regular paycheck. If you are no longer working and don’t have a lot of assets saved, and you have equity in your home, you may want to look at that equity as another asset to use during retirement.

There are essentially five ways you can use home equity:

1) You can take out a reverse mortgage.

A reverse mortgage allows you to receive monthly payments which are basically borrowed from your home’s equity. Reverse mortgages don't require you to pay up until you move out of the home or pass away. With a reverse mortgage the lender or bank holds the title, which means your heirs won’t inherit your residence.

2) You can take out a home equity loan, line of credit (HELOC) or do a cash-out refinance.

Refinancing or taking out a loan is another option, but remember that it comes with costs in terms of interest charged by the bank or lender, and regular payments will be due. All of these types of loans use your home as collateral, so make sure you can afford the payments lest you lose your home to foreclosure.

3) You can use borrowed funds to invest in something else.

Similar to #2 above, you can take loans but instead of using the money for income, you can invest it. If you borrow against equity to fund other investments, you'll want to make sure you're choosing investments that have a higher potential yield than the appreciation you are likely to see on your home. Talk to a financial professional if you need help making the right investment moves.

4) You can sell your home and downsize.

Although somewhat hard to do right now in an expensive home market, you can cash in on your equity by selling your house and downsizing or renting a more affordable property, thereby reducing your monthly housing costs. A more manageable payment as well as less maintenance could be achievable with this option.

5) You can use a home equity loan to consolidate debt and reduce the interest rate on your outstanding debt.

With the average rate on credit cards right now at almost 24%, and with a home equity loan at just 8% to 9% on average, this could make a lot of sense for you. "Home equity can help improve cash flow as you approach retirement, especially if you're carrying debts like car or student loans," says Nate Towers, director at Five Pathways Financial

If you have any questions about creating income in retirement, contact us at (480) 933-8300.

Read the original article here: https://www.cbsnews.com/news/ways-you-can-use-your-home-equity-to-prepare-for-retirement/

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