See how you can retire well with real estate
A home is usually one of our biggest financial assets. It’s also an emotional asset, tied to memories, experiences and relationships. When it comes to retirement planning, it’s often difficult to decide what to do with that asset.
There is no shortage of options to tap into the equity of a home, but they all boil down to two basic options: Sell it or borrow against it. Here are some ways to get equity out of your home for retirement:
DOWNSIZING
One common strategy is downsizing, in which you sell one home and buy another for less money, thereby freeing up some of the equity from your original home. It’s not for everyone, though.
For those with tremendous emotional attachment to a home, downsizing can be a difficult choice. In other cases, downsizing may not net the homeowner any cash, if their original home is older and needs work. Monthly expenses such as condo or maintenance fees can sometimes make downsizing more costly.
RELOCATION
Relocation can be another way to tap into the equity of the home, especially if you are moving to a location where houses are less expensive. Moving from a desired neighbourhood in the city to a home in the suburbs to be closer to kids and grandkids could work in your favour.
SELL AND RENT
You can choose to sell your house, access the full equity and then rent a home. For example, it can be quite useful to have that money on hand when the time comes to move into an assisted-living or care facility. However, as practical as this may be, many people find it psychologically difficult to rent once they have been owners.
REVERSE MORTGAGES, LINES OF CREDIT
For homeowners who don’t want to sell, another way to access equity is to borrow it. The two most common debt solutions are reverse mortgages and home equity lines of credit (HELOC).
A reverse mortgage lets homeowners access a portion of the value of their home to
use today, while still retaining ownership. This converts equity to cash, which can be received as a lump sum, regular payments, or a combination of the two.
The biggest advantage of a reverse mortgage is there is no need to make any payments. Instead, interest costs accumulate against the equity and the total debt has to be paid when you sell your home or when you die.
Home equity lines of credit let you access higher limits, but you must make minimum monthly payments against any outstanding balances.
Going into debt should be done carefully, but in retirement it is prudent to be particularly cautious.
Financial expert Jim Yih publishes the award-winning blog RetireHappyBlog.ca.
