Since many older Americans face challenges with their retirement savings, unconventional options such as tapping into home equity should probably be explored for people with limited cash reserves. According to a new column published in Money Talks News, the rate at which home price appreciation has increased over the past year helps provide evidence of this.
“If you’re a homeowner, there’s a good chance your equity has grown over the past year,” the column reads. “Soaring home prices caused by a pandemic-fueled real estate frenzy has led to a scenario in which homeowners in the United States are sitting on a record $ 22.7 trillion in home equity. after earning $ 2.7 trillion in net worth over the past year, according to a new report. “
Tapping into the increased amount of equity in a home that a senior can sit on is a viable option for improving their financial situation in retirement, the column reads, and a plethora of options exist for those who wish to find ways to convert that equity into usable money.
Of the options explored by the column, the most common ones including downsizing and moving into a smaller house or rental are detailed, as is the option of taking a cash refinance. Another option appearing in the middle of the pack, however, is a reverse mortgage.
“If you are at least 62 years old, you may be eligible for a reverse mortgage. Like a cash refinance, a reverse mortgage allows a homeowner to leverage the equity in their home to cover expenses or meet their retirement income needs, ”the column explains. “Unlike a cash refinance, however, you can receive the money in monthly installments, a line of credit, or a lump sum payment. “
Along with the potential benefits, some may consider the downsides of the product, including leaving the loan to be settled by the heirs who will have to sell the house and use the proceeds to pay off the outstanding debt.
“A reverse mortgage should only be repaid if you die or your home is no longer your primary residence,” the column said. “If you die after taking out a reverse mortgage, your heirs will either have to sell the property or use other funds to pay off the loan and keep ownership of the house. “
Still, the possibility of using your home equity – which may have seen a noticeable increase in the past 18 months – to bolster financial standing in retirement shouldn’t be ruled out out of hand, according to the column. .
“If you are nearing retirement or have already retired, leveraging your home equity can be a viable way to supplement your retirement income,” one read. “Downsizing, cash refinances and reverse mortgages are all ways to convert home equity into cash for retirement. “
Read the column on MoneyTalksNews.