older Americans facing problems related to their retirement savings, looking at non-conventional options like home equity tapping should likely be explored for people with limited cash reserves. According to a new column published at Money Talks News, the pace at which home price appreciation has grown over the past year helps provide evidence for this.
“If you own a home, chances are your net worth has shot up in the last year,” the column reads. “Skyrocketing home prices caused by a pandemic-fueled real estate frenzy have led to a scenario where homeowners in the U.S. are sitting on a record $22.7 trillion worth of home equity after gaining $2.7 trillion in equity over the last year, according to a new report.”
Tapping into the bolstered amount of home equity a senior may be sitting on constitutes a viable option to improve one’s financial standing in retirement, the column reads, and an abundance of options exist for those wanting to find ways of converting that equity into spendable cash.
Among the options the column explores, the common ones including downsizing and moving into a smaller home or rental are detailed, as is the possibility of taking a cash-out refinance. Another option appearing in the middle of the pack, however, is a reverse mortgage.
“If you’re at least 62 years old, you may qualify for a reverse mortgage. Like a cash-out refinance, a reverse mortgage allows a homeowner to tap the equity in their home to cover expenses or meet income needs in retirement,” the column explains. “Unlike a cash-out refinance, though, you can receive the cash in monthly installments, a line of credit or a lump sum payment.”
Listed in equal measure with the potential benefits are what some may consider downsides to the product, including leaving the loan to be settled by heirs who will have to sell the home and use the sale proceeds to pay off the outstanding debt.
“A reverse mortgage loan only needs to be repaid if you pass away or if your home is no longer your primary residence,” the column says. “If you die after taking out a reverse mortgage, your heirs will either need to sell the property or use other funds to repay the loan and maintain ownership of the home.”
Still, the possibility of using your home’s equity – which may have seen a notable increase over the past 18 months – to bolster financial standing in retirement should not be dismissed out of hand, the column says.
“If you’re approaching retirement or have already retired, tapping the equity in your home can be a viable way to supplement your retirement income,” it reads. “Downsizing, cash-out refinances, and reverse mortgages are all ways to convert home equity into cash for retirement.”
