Ways to Use Home Equity in Retirement, Ep #318

Have you thought about using your home’s equity to help you fund a portion of your retirement?

In this episode of Retirement Starts Today, we’ll explore a Morningstar article that examines ways to use this supersized emergency fund. If you are ready to start thinking about retirement outside the box, listen to this episode to hear how you can supplement your retirement by using your home equity.

Outline of This Episode

[1:22] Home equity is seen as a someday asset
[9:28] Reverse mortgages could be a valuable lifeline
[14:10] The rules surrounding spousal Social Security

Home equity is a financial asset that many people don’t consider

Home equity refers to the current market value of the home minus any remaining mortgage obligation. Many Americans have more home equity than financial assets. Depending on where you live, your home equity can represent a significant portion of your assets. Most people consider their home equity as a sort of last-resort savings vehicle. It’s something they may consider using someday.

Home equity can be a valuable retirement resource. It is an asset that often outpaces inflation that is not correlated to the stock or bond market. Most people don’t have any specific intention of using their home equity to supplement their retirement income, but it could be a valuable, untapped resource.

Tapping into your home’s wealth should involve careful consideration as it is not a strictly financial decision. Consider factors such as your home’s suitability for aging in place, and its proximity to family, healthcare providers, and social support before making any life-altering decisions.

Financial strategies for unlocking housing wealth

These strategies may unlock substantial assets that could help you enhance your retirement

Sell and Move: Opting for living in a less expensive location could unlock a substantial amount of home equity. This is only possible if you are selling a home purchased at significantly lower prices decades ago. Another way to gain access to more assets is to move from a high-value area to a low-value market.

Consider downsizing: If you would like to stay in your current area you may want to consider reducing your square footage. This can decrease not only the price of your mortgage, but also taxes, insurance, utilities, and upkeep. Nevertheless, one thing to consider about downsizing is how difficult it is to implement. Letting go of a lifetime of stuff can be a challenge.

Borrow against your home equity: If you don’t want to move, consider borrowing against your home’s equity. Conventional mortgages and lines of credit are both possibilities but require regular monthly repayments.

The federal Home Equity Conversion Mortgage (HECM) program, allows homeowners aged 62 and over to receive equity in their homes as cash without making monthly repayments. The amount owed increases over time, while equity decreases. While there are negative aspects to consider, a reverse mortgage can be a useful tool for homeowners who want to remain in their homes but need additional income in retirement.

If you are trying to figure out how to finance the last part of your retirement you may want to consider using your home equity. Listen in to hear the best ways to get that done.