Preparing for retirement typically involves investing wisely and building up a good-sized nest egg to carry you through when you stop working. But an investment portfolio, some savings, and Social Security may not be enough to allow you to retire in the style you’d like. There is a solution, though – and that is your home equity. Read on to find out how to use your home equity to retire in style in Billerica.
Overview of Home Equity
First, let’s dispel some of the common confusion surrounding home equity.
Basically, home equity “is the amount of ownership you have in your home. You can calculate your home equity by determining your home’s market value and subtracting your outstanding mortgage balance (plus any other liabilities, like a home equity loan). If you have $100,000 left on your mortgage and the appraised market value of your home is $400,000, your home equity equals $300,000.”
And for most retirees and people approaching retirement that equity is a big portion of their net worth. “According to the U.S. Census, two-thirds of the median net worth for householders at least 65 years old comes from their home equity. In 2017, median home equity for the 65+ crowd was $170,000. That can help solve a lot of retirement funding headaches, right?”
So your home equity is the market value of your home minus what you still owe on it if any. And that amount belongs entirely to you. “If,” for example, “you have $50,000 of home equity, for instance, that figure isn’t owned by another party, like a bank or lender. You might be able to use this home equity to help fund retirement costs.”
So let’s see how you can do that in order to retire in style in Billerica.
Ways to Use Home Equity to Retire in Style
There are several ways to use the equity in your home to retire in style, but here are the most common and most effective ones . . .
Downsize and Invest Proceeds From the Home Sale
One effective way to use your home equity to retire in style in Billerica is simply to downsize and then use the proceeds from the sale of your home for investment purposes.
“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.”
Of course, downsizing means that you will need to buy a smaller home to live in. An experienced Billerica agent can help you find the home that will meet your financial goals and retirement needs. Just call (978) 408-9011 to consult an agent.
Sell Your Home and Move to an Inexpensive Area
Another way to leverage your home equity to fund your retirement involves selling your current home and then moving somewhere with a lower cost of living. That way, you can use both the proceeds of your home sale and the money saved living in a more inexpensive area for retirement purposes.
Here’s an example: “if you live in Los Angeles and currently make $100,000 per year, you’d only need $64,000 per year in Lincoln, Nebraska, to afford the same lifestyle.”
You can use any of the available online cost-of-living calculators to determine how and how much such a move would benefit you financially. Or, even better, you can consult an experienced agent at (978) 408-9011.
Get a Home Equity Loan
You could also get a home equity loan to help you retire in style in Billerica.
Also known as a second mortgage, a home equity loan “allows a homeowner to cash out some of their home equity. Lenders will typically allow you to borrow up to 80% to 85% of your home equity. With a home equity loan, you get a lump sum of cash when you open the loan. Home equity loans are fixed-rate loans, and you must start to repay the loan immediately. The typical home equity loan term is five, 10, or 15 years.”
While you can use the money from the loan for anything you want, keep in mind that your home is the collateral for the loan. So if, for whatever reason, you don’t make the payments, “the lender can force you to sell the home to cover the loan balance.”
Consider a Reverse Mortgage
You might also consider a reverse mortgage as a way to leverage your home equity for retirement. Although reverse mortgages have gotten a bad rap in the past, this is, nevertheless, an effective strategy used by a growing number of retirees.
“A reverse mortgage is a loan that allows you to tap into your home equity, either as a lump sum or a line of credit, while still owning your home. You can use that money to supplement other retirement income that you have. . . . Since the property is still yours, you’ll need to maintain your home and pay the taxes and insurance. When you sell (or your heirs eventually sell), the loan is paid off and any remaining equity in the home is yours to keep. If the value of the home is less than the loan value for some reason, since it’s a non-recourse loan, the heirs aren’t liable for the difference.”
The drawback of a reverse mortgage is that there will be closing costs, and these are often pretty steep. Nevertheless, a reverse mortgage will allow you to stay in your home and is “a way to tap into the equity for retirement income.”
And Use an Experienced Billerica Agent
Ultimately, there are many ways to use your home equity to retire in style in Billerica. The trick, though, is determining which one is right for you. But an experienced Billerica agent can help, especially if your strategy involves selling and then buying another home. If you’re ready to leverage your home equity to retire in style, contact us at (978) 408-9011.