It is difficult for retirees to live independently in a home of their own on social security alone. Even though social security offers regular cost of living adjustments, social security payments will not keep pace with rising costs. Many retirees who have been able to fund their retirement for years eventually simply run out of money. A home equity loan may be the answer for those retirees who want to maintain their own home and independent lifestyle.
Is it financially prudent to spend the home equity while continuing to live in the house? While many retirees have no other options, using the home equity to live on is at times recommended by financial advisors, especially if the retirees really want to stay in a home that they have occupied for decades. While younger people establish a line of credit type of home equity loan, retirees may or may not be interested in a line of credit.
Home equity can also be used to finance another retirement home. Many elderly prefer to have another residence in warmer climates during the winter months. One way to afford this luxury is to take a second mortgage from the first home and put it down on another residence. Many of these second residences are manufactured homes, which are much more affordable than single-residence estates.
Investing in owning property can pay off great rewards come retirement. Retirees should be very careful how they elect to use the house’s equity and who they take advice from. Many scammers target the elderly’s lack of ability to protect themselves from plans that don’t work in their best interest. Many people in retirement years mistake a friendly sales person for being trustworthy and are not as fully educated about the risks they face by signing on the dotted line.
The most common type of second mortgage for those in retirement is called a reverse mortgage. Reverse mortgages allow the owner to borrow from the equity as long as he is living. Every month, he receives from the mortgage company a “lifetime annuity” payment. As long as he continues to live in the house, he will get lifetime tenure payments. These mortgages are not as common as many would believe since this mortgage makes it hard for the owner to will his house to another family member upon his passing.
Sometimes, specially arranged wills permit the elder to remain in the house, use the value of the house to pay off their living expenses, and pass on the house upon his passing. Another way to arrange a living will is to sign over the house to another living relative. The living relative signs over monthly payments from the value of the house to the elderly person. Whatever balance is left in the value of the house upon the elderly person’s passing is automatically willed to the trustee.
Affording retirement is a very daunting fact nowadays; especially since social security income may not be around decades from now. Using your home equity to finance your retirement may end up the primary option for many of those who hit retirement in the next couple decades.