Whether you’re already retired, or are planning to retire before too long, you may be considering ways to generate more cash to enjoy the retirement you deserve. Traditionally, people tend to think about pensions or savings as their most important options to pay for the lifestyle they’re looking for in retirement. But your home could be an important element of your retirement planning too. Your home can be used to give your retirement savings a quick and significant boost. But each of these ways of tapping your home equity also comes with potential pitfalls.
#1.Downsize to a Smaller Home.
Whether you own the home outright or are still paying off the mortgage, selling your home and moving into a less expensive house can help you to add a significant amount to your retirement savings and cut your monthly expenses at the same time. Downsizing will mean different things to different people, but either way, a cheaper property will immediately increase your cash flow. Not to mention a smaller mortgage payment if you are taking out a loan. . Keep in mind that your needs might change as you age. For example, shifting to a home that’s without any steep stairs to climb may be beneficial down the road, so think strategically.
#2.Pay Off the Mortgage Before Retirement.
Owing a home mortgage-free eliminates one of your biggest monthly bills. While you will still have to pay taxes, insurance and maintenance costs, people who pay off their homes by retirement no longer need to make mortgage payments or pay rent. Your living costs will make up a big portion of your expenses in retirement, and a big chunk of that will come from the mortgage payment each month. Paying off your home makes it much easier to live on a limited budget and boost your income stream and give you one less thing to worry about.
#3.Rent Out a Portion of Your Home.
Retirees who can’t or won’t sell their home but who have extra room can get some income out of their house by renting out a room or a basement apartment. If you’d like more privacy you might consider investing in your property and converting it to a dual occupancy dwelling, which may increase the value and equity in your property. You’ll need to do your sums to make sure you can get a return on any money you invest. There are safety and security risks associated with renting, but if you find the right tenant, it can increase your monthly income and even help pay for some of the utility bills.
#4.Tap home equity.
A reverse mortgage allows retirees ages 62 and older to use their home equity to pay for retirement needs while remaining in their home for the rest of their lives. It’s not for everyone and ideal for people who don’t want to leave their home to their heirs, a reverse mortgage gives you back your equity in a lump sum or in installments. The loan only needs to be repaid if you move, sell the home or die. You could lose your home and you can’t leave the home to heirs unless they pay back the loan. Reverse mortgages can be expensive. CRR estimates that a reverse mortgage taken out on a house worth $250,000 will result in $8,250 worth of fees, including an origination fee, service fee, mortgage insurance and ordinary mortgage fees.