Turn Your Home Equity Into Retirement Income
There are a wide variety of ways to use your home equity for regular retirement income.
Use the Physical Space: It is becoming increasingly common for people to rent out all or part of their home as a source of income.
- Could you rent out a room in your home to a long-term tenant?
- Have you considered housesharing? Remember the Golden Girls?
- What about just renting your home when you go on vacation? VRBO and Airbnb are really easy ways to turn your home into income.
Consider Monthly Income from a Reverse Mortgage: A reverse mortgage is a specific type of home equity loan that is not paid back until you permanently leave your home. One of the options on a reverse mortgage is receiving your loan amount as lifetime payments. Your home equity is turned into lifetime income.
Downsize and Buy Income: Downsizing is usually the most efficient way to cash out your equity. If you want to turn that money into retirement income, a lifetime annuity is one option but you can also consider other income producing assets such as rental property, bond ladders, dividend producing investments and more.
Brilliant Ways On Using Home Equity For Retirement Income
From the past ten years, the cost of living rises at the fastest pace, which can make a scary future for retirees with a steady salary.Are you concerned about your ability to handle expenses after retirement? Or, you may not have enough savings to use after retirement. In this article I discuss 5 Simple Ways on Using Home Equity for Retirement Income.Well, if you own a house, you can use your home equity for retirement income. Most of the retired individuals of ages between 65 to 85 years have more home equity as compared to liquid financial assets.And, this home equity offers retirees a great option to plan retirement income.You can convert home equity into retirement income, cash, and financial leverage. This will help you to improve your overall wealth and offers long-term care you need after retirement.However, using home equity for retirement income is one of the best ways for financial stability.Keep on reading to know the best ways of using your home equity for retirement income.
Keep Your Home Equity To Use As A Back Up Plan / Fund Unexpected Events
Perhaps one of the best ways to use your home equity is to hold on to it and only use it if you need to. Use your home equity if you live longer than expected and need additional assets. Or, tap into your equity to fund a long-term care need.
Home Equity to Fund Longevity: One of the most challenging aspects of retirement planning is predicting how long you will live. And, it can be stressful to think about outliving your assets. Your home equity could be a backup plan for funding retirement if you live longer than your assets.
Home Equity to Fund a Long-Term Care Need: Long-term care is tremendously expensive. And, you have no way of knowing if you will need it or not. So, reserving your home equity to fund this expense can be a smart strategy.
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The Surge In Reverse Mortgages
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
How Home Equity Works
The most common ways to access the equity in your home are a HELOC, a home equity loan and a cash-out refinance.
To tap into your homes equity through one of these options, youll need to go through a process thats very similar to obtaining a mortgage. You can apply through a bank, credit union, online lender or another financial institution that offers these home equity products.
Lenders will consider multiple factors, including a persons debt-to-income ratio, loan-to-value ratio, credit score, and annual income, says Michele Hammond, senior home lending advisor at Chase Private Client Home Lending. Additionally, to determine the amount of equity in a home, a lender will employ an appraiser to determine the current market value of the home, which is based on its conditions and comparable properties in the area.
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Why Use Home Equity
Tapping your home equity can be a convenient, low-cost way to borrow large sums at favorable interest rates to pay for home repairs or debt consolidation.
However, the right type of loan depends on your needs and what you plan to use the money for.
If youre looking to spend as you go and only pay for what youve borrowed, when youve borrowed it, a HELOC is probably a better option, says Sean Murphy, assistant vice president of equity lending at Navy Federal Credit Union. But if you are looking for a fixed monthly payment and a large sum of cash up front, a home equity loan is probably the better option.
Using Home Equity In Retirement
Kitty Costs
Hook Law Center: Kit Kat, is it expensive to own a cat?Kit Kat: Well, that answer, surprisingly, is yes. Yet that hasnt deterred Americans from owning them. Cats are now the most popular pet, with 36.1 million households owning 74 million of them v. 43.3 million households owning 69.9 million dogs . Cats are known to be self-sufficient, and that appeals to busy people in dual-career families these days. Dr. Kevin T. Fitzgerald of a veterinary clinic in Denver says, Its a convenience thing, and were a society based on convenience.However, as we all know, convenience has its own price. $670 is the annual cost per cat to provide food, litter, and vet bills, according to the American Society for the Prevention of Cruelty to Animals. This figure represents $90 more than the care of a small dog. The cost of litter is what is to blame. Litter costs are typically in the range of $165 per year. So you can see what I meanyou dont have to walk a cat on a daily schedule in all kinds of weather, but you do pay in other wayswith cash. But thats precisely why my parents have cats instead of dogs. To them, we are a whole easier to care for. So while we look small, we cats are big on expenses. Oh, well, as the saying goes, Nothing worthwhile comes free!
May 24, 2013)
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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.
Using Home Equity For Retirement Income
Preparing for retirement financially can be difficult, especially if you start saving later in life. In fact, saving any money at all can be difficult for some people: almost a third of Canadians approaching retirement have no savings whatsoever.
For homeowners reaching retirement with zero or insufficient savings, using home equity for retirement income can help make up that shortfall. The problem for some homeowners preparing for retirement is that certain home equity loans are beyond their reach.
Many retirees might not qualify for a regular home equity loan or home equity line of credit because of their low income or poor credit rating. Even those that do qualify could find that the monthly repayments make too big of a dent in their retirement income.
This is why the CHIP Reverse Mortgage® can be the perfect solution for Canadian Homeowners. Unlike regular home equity loans, income is not a factor in qualifying for a reverse mortgage. Also, because you dont have to pay what you owe until you decide to sell, it doesnt have a negative effect on your retirement income.
Another plus side is that you can receive the money in either one larger lumpsum or spread out into regular deposits, so it acts like extra income. The choice is yours!
Call us today at 1-866-522-2447 to find out how much you could borrow and how the CHIP Reverse Mortgage could help you in preparing for retirement financially.
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Smart Ways To Use A Heloc
Many people strive to pay off all their debt before retirement. While this is a great goal, there are some types of borrowing that can make sense even once you are retired. A home equity line of creditoften referred to as a HELOCis one type of debt you may want to consider using, even after retirement.
Here are five ways a home equity loan can be used to manage your cash flow and account withdrawals.
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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Moneytalksnews: Capitalizing On Home Equity In Retirement Could Provide Benefits
With many older Americans facing problems related to their retirement savings, looking at non-conventional options like home equity tapping should likely be explored for people with limited cash reserves. According to a new column published at Money Talks News, the pace at which home price appreciation has grown over the past year helps provide evidence for this.
If you own a home, chances are your net worth has shot up in the last year, the column reads. Skyrocketing home prices caused by a pandemic-fueled real estate frenzy have led to a scenario where homeowners in the U.S. are sitting on a record $22.7 trillion worth of home equity after gaining $2.7 trillion in equity over the last year, according to a new report.
Tapping into the bolstered amount of home equity a senior may be sitting on constitutes a viable option to improve ones financial standing in retirement, the column reads, and an abundance of options exist for those wanting to find ways of converting that equity into spendable cash.
Among the options the column explores, the common ones including downsizing and moving into a smaller home or rental are detailed, as is the possibility of taking a cash-out refinance. Another option appearing in the middle of the pack, however, is a reverse mortgage.
Read the column at MoneyTalksNews.
Rent Out Space For Retirement Income
If you dont want to downsize because you love your place then, rent out a room or some portion o your home is a great choice. You can rent to a graduate student, family, medical resident, and anyone you can trust.Use online sources and offline adds to reach out among people who need space at rent. The money you get from rent will work as retirement income for you.
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How Does Borrowing From Home Equity Work
Whether youre looking to free up cash for a home renovation or find ways to consolidate debt, borrowing against the value of your home could be a good option. While you pay off your home, you build equity that you can later use for home equity loans or home equity lines of credit .
Because you can use equity for loans or tap into it when selling your home, its a great financial tool. The bigger your down payment and the more you pay toward your mortgage, the greater chance you have at increasing your total equity.
If youre considering using your home equity, keep the following in mind:
Use A Home Equity Line Of Credit To Purchase A Rental Property
A home equity line of credit is a revolving credit line that uses your house as collateral. Unlike a reverse mortgage, youll need to make a minimum payment toward the principal loan amount and the interest each month.
Since a HELOC actually increases your monthly bills and your overall debt, its never advisable to rely on it as a cash supplement to your retirement income.
The only practical way to use a HELOC to generate additional retirement income is to use it as a down payment towards a rental property investment.
Pro: A rental property is a tangible asset
Investors with free and clear cash have a choice to make between investing in real estate or the stock market. Both come with risks and benefits, making it a personal preference decision.
However, when your investment capital is coming out of your primary residence via a HELOC, purchasing a rental property is the clear choice.
A lot of people are looking at rental properties as additional income for those retirement years. Its a physical asset, so its certainly more stable, says Carpenter.
Since land is an appreciating asset, in the long run your investment will continue to growunlike a risky investment in a volatile stock market, where your investment could lose value.
Con: It takes time to liquidate a rental property
Pro: An investment property guarantees a monthly rental income
Con: Youre increasing your monthly housing expenses
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How Borrowing On Home Equity Works
You may be able to borrow money secured against your home equity. Typically, interest rates on loans secured against home equity can be much lower than other types of loans.
Not all financial institutions offer home equity financing options. Ask your financial institution which financing options they offer.
You must go through an approval process before you can borrow against your home equity. If youre approved, your lender may deposit the full amount you borrow in your bank account at once.
You can borrow up to 80% of the appraised value of your home.
From that amount, you must deduct the following:
- the balance on your mortgage
- your total HELOC amount, if you have one
- any other loans secured against your home
Your lender may agree to refinance your home with the following options:
- a second mortgage
- a loan or line of credit secured with your home
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.
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How Home Equity Release Works
‘Equity’ is the value of your home, less any money you owe on it .
‘Home equity release’ lets you access some of your equity, while you continue to live in your home. For example, you may want money for home modifications, medical expenses or to help with living costs.
Ways to access equity in your home include:
- reverse mortgage
- home sale proceeds sharing
- equity release agreement
- the Government’s Pension Loans Scheme
The amount of money you can get depends on:
- your age
- the value of your home
- the type of equity release
Your decision could affect your partner, family and anyone you live with. So take your time to talk it through, get independent advice and make sure you understand what you’re signing up for.
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.
Now:
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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