Using Home Equity For Retirement Income


Cash Out By Selling Outright

Using Home Equity in Retirement: Four Ways To Access Your Home Equity For Retirement Income

Numerous options are available to you after retiring.

Some people remain in their current home, but others choose to sell and move to another property.

For those looking to be closer to family, they might relocate and move in with their adult children and grandchildren.

Selling your house and moving in with someone frees up cash tied in your home, which can supplement your retirement income.

The downside:

Youre giving up some of your personal space and privacy.

But selling doesnt mean that you have to move in with someone.

  • Take your equity and move into something newer or your dream home.
  • Or, sell and put the equity toward purchasing a primary/investment property.

For example, you might consider buying a duplex. You could live in one unit and rent out the other unit. This is an excellent way to stretch your retirement dollars.

The rent you receive on the second unit might be enough to cover the mortgage on the entire property, or at least half the mortgage.

This minimizes your monthly expenses, allowing you to stretch your retirement dollars.

Asset Rich And Income Poor Is The Dilemma Faced By Many Retirees But There May Be Opportunities To Boost Your Income In Retirement By Tapping Into Your Biggest Asset Your Home

With property prices booming, many retirees are finding that the home they have lived in for decades is worth a small fortune, but for various reasons, they dont wish to sell or downsize.

What many may not realise is that you can have your cake and eat it too. Or, in this case, convert part of the value of your home into an income stream while you remain living there.

The ability to borrow against the equity in your home without having to repay until you move out or sell comes in various guises, but the result is largely the same an enhanced lifestyle in retirement. The extra income may allow you to enjoy some little luxuries, travel more, or pay for home improvements.

There are four types of products on offer:

  • Reverse mortgage
  • The governments Pension Loans Scheme .i

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None of these strategies should be adopted without careful consideration as they may have an impact on your family, your beneficiaries and with the exception of the PLS your Age Pension if you receive one.

As a result, we recommend you speak to us first to discuss whether accessing some of your home equity would be appropriate for you.

This is how these products work:

1. Reverse mortgage

A reverse mortgage lets you borrow money against the value of your home and take it as an income stream, a line of credit, a lump sum or a combination.

Alternative: Heloc Or Home Equity Loan

With that being said, consider getting a home equity line of credit or a home equity loan .

Both options also allow you to borrow up to 80 percent of your homes equity. Closing costs with both can be cheaper, and you can get a repayment term as low as five years.

Use this money to pay your down payment and closing costs on a rental property purchase. Or put it toward improving the space.

If you buy a property at a good price, an investment property can be a lucrative income stream.

More so if you find a long-term renter, or if you use the property as a vacation rental and it stays booked the majority of the year.

But since youre borrowing equity from your primary residence to purchase an investment property, your primary mortgage payment will likely increase.

And if your home was paid off, this means that youll have a new mortgage on your primary property.


Before going this route, consider the pros and cons of being a landlord.

For example, there might be times when your property is empty, such as in between tenants. In which case, youll need to make the mortgage payment out of your own pocket.

Also, you have to maintain and upkeep investment properties. This can involve major improvements and minor cosmetic repairs for as long as you own the home.

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Equity Release A Key To Secure Retirement

For most Australians, the family home is their single largest asset, and it is more valuable than ever.

Yet few retirees use the equity in their home to help fund their retirement, instead passing it on in full as an inheritance to the kids. This wasnt such a problem 30 years ago, when the typical home cost only two to three times the median workers wage. But decades of rapidly rising property prices mean the median house now costs about 10 times the median wage, and even more in Sydney and Melbourne.

Many retirees live incredibly frugally while sitting on enormous nest eggs. Younger generations are spending a larger share of their lifetime earnings to pay off a house, or using the super to clear the mortgage at retirement.

Unless they become more comfortable with using their home equity in retirement, Australians will have lower living standards in working life and retirement while passing on even larger inheritances to their children and grandchildren. Thats why the federal governments rebranding of the Pension Loans Scheme as the Home Equity Release Scheme is an important step.

Private providers of reverse mortgages have been around for decades, but the idea hasnt caught on. The big banks worry about the reputational risks of foreclosing on grandmas home, the interest rates offered have been unattractive and risk-adverse retirees are suspicious of taking on debt.

The Surge In Reverse Mortgages

Using Home Equity For Retirement Income

Reverse mortgages suddenly are booming. The number of reverse mortgages insured by the federal government surged by 77% in 2006. Areas with high home prices and a high percentage of older people see the greatest number of the mortgages issued. Several factors are behind the increase in reverse mortgages. The aging population increases demand, as

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Can A Home Equity Line Of Credit Be Used For Investing

Yes, the proceeds from a home equity line of credit can be used for investing. In fact, many real estate investors use their HELOC to cover the down payment on new properties. However, there are risks involved in doing so, so it is important to always act according to your own means and risk tolerance.

Sell Your Old Home And Move In With Your Kids

If you own your homes outright or have home equity, selling it could produce the influx of funds for your retirement needs.Families often live in multi-generational homes drive-by grown kids moving in with their parents. Whether you live in a basement or the extra bedroom, living together with kids and family will be beneficial for you as well as your kids.Young parents appreciate your help with grand kids. Being grandparents, you can pick up kids at school, music class or a dance class. Apart from the financial benefit, there are emotional benefits as well in living with family.

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What An Equity Release Agreement Costs

It’s not a loan, so you don’t pay interest. Instead, you pay fees such as:

  • an application fee
  • periodic service fees, potentially deducted in advance from your home’s equity
  • a fee to end the agreement

Get the fund to go through projections with you, showing the impact on your home equity over time. Get a copy of this to take away, and discuss it with your adviser. Ask questions if there’s anything you’re not sure about.

How To Turn Home Equity Into Retirement Income

Using Home Equity in Retirement

When You Retire, You Can Downsize and Invest the Proceeds

Once you stop working, sell your home, buy something smaller and less expensive, then take your gains from the sale and invest them to provide an income stream.

A smaller place can be less expensive to maintain, too. Property taxes may be lower on a less expensive home, since they are usually based on a percentage of the value of the property. Heating or cooling a smaller space can be cheaper, too.

Alternatively, you could rent! The downside of renting is having to write a check to your landlord every month. The upside is you invest the entire proceeds of your home sale to work for you.

Sell Your House and Move Abroad

Did you know Costa Rica is top of the list of best places to retire internationally? You can rent a two-bedroom home for $500 a month, and medical care is very affordable.

The good news about moving to an exotic place is your family will want to come to visit regularly. With the help of technology like Skype, you can also keep in touch with your kids and grandkids on a regular basis.

Its not set in stone, either. You can always move back!

Sell Your Home, Invest the Proceeds, and Live for Reduced Rent

Manage the onsite and day-to-day operations of an apartment or condo complex you move to and live for free or reduced rent for part-time work.

Sell Your House and Move in With Your Kids.

Rent Out Space

Stay in Your Home and Take Out a Reverse Mortgage to Tap Into Your Equity

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The Impact Of Higher Investment Returns

The cash flow survival probabilities determined with the use of the 32-year investment return data were noticeably higher than those determined with the use of the 37-year data. But the qualitative results were essentially the samewith each investment return data set, the active strategies yield substantially higher cash flow survival probabilities than the conventional strategy.

Figure 6 is indicative: the cash flow survival probabilities are shown for a 6.5 percent initial withdrawal rate for eight different situations. The upper four lines show the results of the coordinated strategy using the 32-year investment return data and the 37-year investment return data, each with the current expected rate and the applicable mean expected rate. It is obvious that the 32-year data yield greater cash flow survival probabilities. In fact, the 32-year data reflect investment returns sufficiently higher than the 37-year returns in that they bring the 30-year cash flow survival probability almost to 90 percent .

The lower four lines show the results of the conventional strategy, also using the 32-year data and the 37-year data, each with the current expected rate and the applicable mean expected rate. The reverse-mortgage-first lines have been omitted, simply for clarity. And again, the 32-year data yield greater cash flow survival probabilities.

Convert Your Home Into A Rental

Retirees with the energy and willingness to be a landlord can combine some of the above strategies to create a new income stream. If you own your home outright, you can take out a mortgage on the home and use the cash infusion to cover your retirement expenses, including a buying a smaller home or renting an apartment. By converting your primary residence into a cash-flowing rental property, youll hang on to the home and use the monthly rent to cover your mortgage payments. pocketing whatevers left over. Assuming the property remains rented, it will be a valuable asset to leave to your heirs as part of your estate.

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Purchase An Investment Property

Then again, maybe you want to stay put and purchase an investment property. This can also improve cash flow and supplement your income.

If you dont want to use personal savings to finance investment properties, maybe pull cash from your home.

Refinancing is the process of getting a new mortgage to replace an existing mortgage. Its an excellent way to reduce your mortgage interest rate. And with a cash-out refinance, you can borrow up to 80 percent of your homes equity.

The downside:

You might not qualify for a lower interest rate. Also, youll have to pay closing costs again.

Refinancing can even extend the life of your mortgage. Many lenders dont allow mortgage terms less than 15 years.

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Use Home Equity To Gain Financial Leverage And Flexibility

5 Brilliant Ways On Using Home Equity For Retirement Income

Maybe you dont exactly need cash now. It can still be beneficial for you to consider your home equity as a usable asset.

Having access to a home equity line of credit, cash proceeds from the sale of your home or a reverse mortgage line of credit gives you a greater array of financial options and more flexibility. Think of your home equity as another source of money to use strategically.

  • Maybe you cant afford to retire early without starting Social Security, but you know you are better off in the long run by delaying the start of the benefit. You could retire at your desired age and tap your home equity to bridge the time period between stopping work and starting Social Security.
  • Perhaps you want to continue growing your investments instead of tapping them now but you need a source of funds. Home equity can be considered as an alternative source of funds.

Here are a few ways to gain leverage and flexibility with your home equity:

Home Equity Line of Credit: A home equity line of credit can be an efficient way to have access to your equity. You only pay interest on the money you use, not all of the funds that are available to you.

Reverse Mortgage Line of Credit: If you cant qualify for a home equity line of credit, you might consider a reverse mortgage line of credit. There are actually many advantages to this loan over more traditional options. Compare the two options.

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Leveraging Your Home In Retirement

Even after decades of saving, most retirees find that their home is still their single biggest asset, according to a recent report from the Wharton Pension Research Council. And yet the question of what to do with a primary residence in retirement is often presented as binary: Stay putor sell?

If you decide to stay in your home, it’s generally wise to pay off a mortgage before you retire, which will help establish a strong financial footing later in life. “That gives you a lot more financial freedom,” says Chris Kawashima, CFP®, a senior research analyst at the Schwab Center for Financial Research.

But staying put doesn’t mean you can’t leverage your home’s value in retirement. After paying off your mortgage or building up equity in your home, you may wish to consider renting it out or tapping its equity to support retirement, especially in a hot housing market.

Though such moves can make sense, each carries its own risks. “You may be tempted to treat your home as a bank to support your retirement, but like everything else in life, it pays to plan ahead and weigh all your options,” says Rob Williams, managing director of financial planning at the Schwab Center for Financial Research.

Here are the three most common ways to tap a home’s value in retirement.

Option B: Sell Your Home Liquidate Your Equity And

How much is your home worth? It depends. You cant always count on your home being worth as much tomorrow as it is today.

Until you sell, your homes value is just a number on a piece of paper. That number can change as the real estate market shifts between buyers, sellers, and balanced market conditions.

During the notorious 2008 financial crisis and the subsequent housing market crash, home values fell fast. Luckily, as the economy recovered, so did home valuesand theyve recently surpassed peak values set in 2006.

Plus, theres been significant financial regulatory reform to stave off such a dramatic economic crisis in the future. So, while your homes value may fluctuate, its unlikely to take a dramatic dive.

However, there are signs that home values are leveling off, and may even be falling slightly in some areas. Some economists are even advising that if youre considering selling your house, you should sell before 2020.

So, if youre happy with your homes current market value, and you want to access every last cent of that equity, the only way to do it is to sell it.

Selling the home where youve raised your kids and made precious memories is a heart-wrenching decisionbut the financial freedom that comes with unloading your now too-big home makes the process easier.

The question is: What do I do now that Ive sold my home?

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What Is The Best Way To Tap Home Equity

The smartest strategy for accessing your home equity depends mostly on what you want to do with the money. Of course, your and your financial situation matter, too. However, they will be factors regardless of which option you choose. These choices usually match with the situations and goals listed below.

It is often a good idea to speak with a qualified before applying for a loan.

Ways To Use Your Home Equity For Retirement Income

Generate Cash Flow For Retirement Using Your Home Equity


I am a late starter to retirement planning. Should I count my house or the equity in my house as an asset in my retirement plan?

If you are playing catch-up on your retirement planning, you need to maximize every asset you have to make retirement a reality.

In general, financial planners don’t count the equity in your home when constructing a retirement income plan. Practically speaking, you need a place to live! So financial planners count it as a personal asset, even though it’s a large part of your net worth.

Late starters to retirement planning need to think differently. Your home can be leveraged to help enhance your retirement plan.

Home equity can be tax-free

Your home is a special asset in the eyes of the IRS. According to IRS Tax topic 701, as of February 2018 , if you are married filing jointly, you can exclude up to $500,000 in gains from income taxes on the sale of your residence.

That’s right. You can buy a house, live in it, sell it, and pay no taxes on up to half a million dollars. You just have to pass an “ownership test” and a “use test.” In other words, you have to own the home and have lived theretwo out of the past five years.

For example, if you bought a home for $250K, lived in it for at least 24 months out of a five year period, and sold it for $750K, the gain of $500K would be free from income tax. Pretty sweet!

How to turn home equity into retirement income:

1. When you retire, you can downsize and invest the proceeds.

6. Rent out space.

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