April 05, 2013

How Beneficial it is to Depend on Home Equity for Retirement

It is known to all that your home is the most vital asset, which you will never wish to lose at any cost. Based on this belief, a doubt surely arises in your mind while planning for retirement – “Is it beneficial to use home equity for meeting your financial needs during the days of retirement?” The answer to this question becomes even more essential when you can arrange for other sources of funds from online giants. According to a few financial advisors, reverse mortgages, home equity loans, and home equity lines of credit are ideal for unlocking the funds locked in your home, thus, enabling you to breathe contentedly during the retired life.

Why Home Equity for Retirement

As per the recent survey of Ameriprise Financial, it was found that amongst the Americans belonging to the age group of 50 to 70; around 47% depend on home equity for gaining funds for their retirements after economic crisis. Further, around 37% agreed that they are not ready to pay off their mortgages before retirement. Sadly, the crisis has affected the housing market so badly that it has not yet fully recovered from it. Further, the worth of a majority of investments has reduced on an average in current years. Therefore, chances are high that the reduced investment values can contribute drastically to the increased number of people who are of the opinion that home equity will be needed for funding their requirements at the time of retirement. But still, it is worth thinking whether tapping home equity is beneficial or not! After all, home is where you dwell and live most of your life after retirement!

Why Think Thoroughly before Tapping Home Equity

During your days of retirement, it is obvious that you will require a place to sit, sleep, eat, and relax almost every day. Having a durable, defensive roof above your head may mean having a trustworthy source of funding for fulfilling your retirement plans. The different types of home equity funding such as reverse mortgages may seem very costlier due to the high fees and interest rates. Now, on top of that, if you decide to shift somewhere else after using a reverse mortgage, it will be very shocking for you to know the amount of home equity that has been drained. As a result, you may be unable to buy a smaller home or join an assisted living home. Therefore, it is better to avoid loans and prevent home downsizing for safely using a part of the equity you have earned while still retaining a safe place to survive.

How Tapping Home Equity for Retirement Can Hurt You

If you are purchasing a new home with the motive of using it in future as a source of funding your retirement needs, it is time to think twice before you do so. Typically, people who do so think that the worth of this new property will increase in future due to which it will be of great help for funding while earning nothing. But, this may not be true! This is for a simple reason that time changes, and so will the economic conditions.

When the economic situation will show the signs of growth, the value of investments and homes will surely improve. But if it will collapse, the worth may be only that much at which you may have brought your property. Further, no one can predict the economic condition during one’s days of retirement. So, to be on the safe side, it is wise to believe that home prices and interest rates will fluctuate over time.

Sherry Rosen is an investment banker who has gained experience by working with several financial firms. Currently, she is much interested in trading annuities, similar to those handled by JG Wentworth, a financial firm. She is available at @SherryRRosen and https://twitter.com/SherryRRosen.

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