Home Equity Options for Seniors in Retirement
Financial hardship is a challenge at any age. But when you are nearing retirement and abruptly lose your job, have an unforeseen expense, or simply trying to survive post-COVID and the financial uncertainty of banks closing, inflation, and the potential of sliding into a recession, it’s never been a better time to learn more about leveraging all resources available.
If you have been saving for a rainy day and realize your savings may not make it through the rain – let’s look at some options you may have never considered before.
Social Security and Home Equity
Social security & home equity are the lowest-hanging financial fruit for most people aged 60+ to understand and consider. Why? Simply put, both assets have a forcing function built in. On your home mortgage, you make your payments, and real estate increases in value over time.
You have social security – you were forced to make that payment, and how you leverage using it, whether at 62 or 66, will determine your lifestyle as you age.
Social Security doesn’t have to be taken immediately, but many people take it as soon as it is available because of fear. Fear it won’t be there when they need it or fear that they may die before they get it. Let’s put fear aside for a moment and look at the data.
There are several factors to consider when deciding whether to take Social Security at age 62 or 66. You can start receiving Social Security benefits as early as age 62. Still, your monthly benefit will be reduced by up to 30% compared to what you would receive if you waited until your full retirement age, which is 66 or 67, depending on your birth year.
Leveraging your home equity is the other approach to delaying social security and getting the total amount of money you are owed. This can be done in several ways – they all have advantages and disadvantages.
Home Equity Line of Credit
A HELOC (Home Equity Line of Credit) gives you access to your home equity, borrowing money for a fixed amount of time until you pay it back. It is easily understood because it resembles your traditional mortgage. The interest on this loan compounds with minimum payments until the principal and interest are due. Depending on your age, this could be tricky.
Reverse Mortgage
A reverse mortgage is a financial product designed for older homeowners who want to convert a portion of the equity in their home into cash. Unlike a traditional mortgage, where the borrower makes payments to the lender, with a reverse mortgage, the lender makes payments to the borrower.
This is the most misunderstood financial product, so speaking with a lender specializing in these is essential. This is typically used to age in place without fear of having to make payments. The heirs receive the home, and like any traditional mortgage, the reverse mortgage would need to be settled by either selling the house or getting a new mortgage once the homeowner passes away.
A Lease-Back Agreement
A lease-back agreement or even an equity share partnership structure may be more your cup of tea. Here is how it works - you agree to receive cash for a part of your home; when your house does eventually sell, you share a portion of the proceeds. This is typically done through something other than a bank. It is an innovative approach to allow you to age in place and get equity from your home to use as you need or want without adding payments or debt, but upon the time you leave home – the entity will share in your proceeds. It may be at a higher rate than other solutions, but they also share in losses many times – researching is essential in leveraging this type of product.
Sell Your Home
Outright sell your home now and use the equity to rent a new home or move into an assisted living community. This secures the most equity; however, making sure you have enough money to live somewhere is something you should talk about with your financial planner to model how your money will perform. A good financial advisor will be able to run every one of these scenarios and give you an accurate cost-benefit analysis without bias.
HECM for Purchase
The most overlooked use of home equity would be a reverse mortgage to purchase a new home, thereby not having a mortgage payment and leveraging the currently available equity. It sounds too good to be true, but it secures a property appropriate to age in place, yet you get a large portion of the equity to use as you see fit right now.
This mortgage product is widely underutilized and should be strongly considered, especially for seniors interested in downsizing their homes. Like any of these products, talk with a reverse mortgage specialist to fully understand how this program works.
We will all be forced to decide how to use our home equity in retirement. Hopefully, most are getting to do so to enjoy their retirement. Some have used home equity as a big part of their retirement savings. There are many options for Seniors to consider, and equity built in the home can be leveraged in many ways to help seniors enjoy a fulfilling retirement.
Delaying social security can be an option to increase your benefit, and utilizing the right mortgage vehicle may be the right move. Always consult a financial advisor and mortgage specialist to put together the right strategy to maximize all the available benefits.
Give Simple Reverse Lending a call or request a Free, No-Obligation Reverse Mortgage Proposal to find out what the bet solution may be for your retirement.