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<\/span><\/div>\n<\/div>\n<\/div>\nGetting extra cash has never been easy, but it can be particularly hard in retirement. There is one area, though, where many retirees have a big advantage over their younger peers: access to a big, golden nest egg in the form of their home.<\/p>\n
Even better, recent economic shifts (including rising home prices) have boosted retirement security for older adults by 12%, according to a recent analysis by the Center for Retirement Research at Boston College<\/a>.<\/p>\n Whether you\u2019re looking to supplement your monthly retirement income or just fund a one-off project, there are many ways your home can boost your cash flow. You probably know some of them already, but there are others that are less obvious and offer special advantages. Let\u2019s compare the different approaches.<\/p>\n Older adults are roughly split in opinion about selling their homes. Half are open to the idea of selling or have already done it, while the other half are vehemently opposed to the idea, according to a recent Fannie Mae<\/a> survey.<\/p>\n It\u2019s easy to see why many people prefer to age in place. You\u2019ve spent a lifetime paying down the balance of your mortgage, crafting the perfect home, growing community connections and building cherished memories. On the other hand, maintaining a home often becomes more difficult as you age, particularly if you aren\u2019t able to hire professionals who can help.<\/p>\n You\u2019re not just slowing down physically but mentally, too, says Mark Van Drunen, senior managing director with MAI Capital Management<\/a>. \u201cIt’s hard for you to make those executive decisions, and then it becomes your children’s problem. They <\/i>then have to take over and make those decisions.\u201d<\/p>\n In light of these problems, selling your home offers certain advantages. You can choose a new home<\/a> that\u2019s easier and less expensive to maintain, safer to live in, closer to family or in an area with a more comfortable climate or amenities. These factors can make it easier to live independently in your new home for longer than you would otherwise. Alternatively, you can use the sale proceeds to pay for assisted living care or other needs.<\/p>\n Either way, it\u2019s a good idea to do the math first to see how much profit you could make from selling your house after all the closing costs, taxes and remaining home debt balances are paid off. Make sure you\u2019ll net a big enough profit to land safely in your next phase, which may be easier if you downsize into a smaller home or move to an area with a lower cost of living.<\/p>\n While it\u2019s not always ideal, the reality is that just over half of homeowners enter retirement while still carrying a mortgage. If that\u2019s you, there are still ways to generate some extra cash if you\u2019ve built up a decent amount of equity \u2014 even if you\u2019re set on staying put.<\/p>\n A cash-out refinance<\/a> allows creditworthy homeowners with sufficient equity and income to replace their primary mortgage with a new, larger one. You\u2019ll pay off your first mortgage and then take the extra funds as a lump sum. This is different from a home equity loan or line of credit (HELOC) that allows you to borrow separately against your home so that you have two different debts linked to your home. With a cash-out refinance, you roll everything together into one loan.<\/p>\n Choosing whether a cash-out refi or a home equity loan is better often comes down to the best deal. \u201cIt would depend on your rates,\u201d says Kevin Lam, a certified financial planner and retirement specialist with Age Wisely Financial<\/a>. \u201cSo that becomes kind of a mathematical question.\u201d<\/p>\n You can use free calculators online to see how much your monthly payment would be for each option, compared to the total amount of fees and interest (i.e., the ultimate \u201cprice\u201d of each loan). If you can refinance your whole mortgage from a higher rate to a lower rate, for example, the cash-out option may be cheaper overall. Remember, too, that you\u2019ll need to consider your ability to pay the new mortgage for the next 15 to 30 years \u2014 perhaps an even bigger factor for many retirees.<\/p>\n You might also be able to free up some money month-to-month via a simple rate-and-term refinance. You wouldn\u2019t get any cash back, but if you can qualify for a smaller monthly payment, it could free up cash in your budget. Today\u2019s retirees, though, will likely have to wait for a while before rates drop low enough for the savings to be enough to outweigh the upfront costs.<\/p>\n If you don\u2019t want to take out a brand-new mortgage, a better option may be a home equity loan or HELOC, which are often called second mortgages<\/a>.<\/p>\n Home equity loans provide you with a lump sum of cash and can come with term lengths as short as five years or less, something that may align better with many retirees\u2019 timelines. On the other hand, a HELOC offers an open invitation to borrow against your home equity on an as-needed basis over the next five to 10 years, which can be extra handy as your needs (and their associated price tags) change over time.<\/p>\n Even so, second mortgages don\u2019t get around the fact that you\u2019ll need to budget money for extra debt payments in retirement. And HELOCs, in particular, can be tough to plan around as economic conditions change.<\/p>\n Lenders typically offer variable interest rates on HELOCs, which can make it tough to count on a predictable payment each month. But \u201cthe biggest problem with the HELOC is that the banks can pull your line of credit, so you’re not guaranteed that credit availability,\u201d Lam says. Lenders can do this if your home value drops, for example, so that you no longer have enough equity in your home.<\/p>\n Thanks to a big overhaul of government regulations, today\u2019s reverse mortgages<\/a> are a far cry from the late-night infomercials of yesteryear, and they\u2019re winning over some former skeptics.<\/p>\n \u201cI did a lot of research and realized the power in reverse mortgages and how helpful they could be,\u201d Lam says. \u201cFrankly, one of the biggest issues is trying to get seniors \u2014 actually anybody<\/i> \u2014 to really understand reverse mortgages as they are now.\u201d<\/p>\n He\u2019s had to resort to creative tactics when describing the product to clients, such as using an analogy where the reverse mortgage is a ladder that you use to access the ripe apples you\u2019ve carefully been growing high up in an orchard tree.<\/p>\n Federally-insured reverse mortgages (the most common kind) are only available to homeowners after they reach age 62. They require no monthly payments and can be structured as a line of credit, a lump sum or \u2014 one of Lam\u2019s favorite uses \u2014 as steady monthly payments that continue indefinitely as long as you meet the ongoing loan requirements. This includes living in your home full-time and keeping up with property taxes, homeowners insurance and \u2014 a big caveat for many retirees \u2014 maintenance.<\/p>\n \u201cSomebody who’s in their 80s is not able to maintain it\u201d on their own, Van Drunen says. \u201cThey probably used to do everything, but 1738537595 they need to pay for somebody that’s doing the maintenance on the HVAC system, the water purifier.\u201d<\/p>\n It\u2019s also true that your reverse mortgage balance will continue to grow, possibly even beyond your home\u2019s actual value, but it\u2019s not as scary as it first sounds. Since reverse mortgages are \u201cnon-recourse\u201d loans, you won\u2019t have to pay back a balance that\u2019s more than what your home is worth. Instead, if you or your heirs end up selling your home and you owe more than it\u2019s worth, the remaining amount will be forgiven.<\/p>\n The truth is that most homeowners \u2014 85%, to be exact<\/a> \u2014 don\u2019t want to use their home equity in retirement. Luckily, there are other ways that your home can provide extra income<\/a> if you\u2019re willing to make a different set of tradeoffs.<\/p>\n One area that seems to be growing more popular is renting out your home for extra income. \u201cIt\u2019s definitely a possibility, but I think you kind of have to find the right person,\u201d Lam says. \u201cAnd when you get up into your 60s, people are kind of set in their ways. Sometimes it’s not that easy to share your living space with somebody.\u201d<\/p>\n Renting out your home for extra income can take many forms. You could list your children\u2019s old bedrooms on Airbnb, for example, or divvy up your home into a duplex or additional dwelling unit (ADU) and rent it out long-term. Many older adults are also turning to home-sharing agreements with like-minded compadres, a la the Golden Girls<\/i>. Such arrangements can help provide social interaction and safety at a time when many older adults report increased loneliness, too.<\/p>\n 5 Areas of Your Home to Renovate Before Retiring<\/a><\/p>\n Here’s How to Rebalance Your Investments Ahead of (and During) Retirement<\/a><\/p>\n<\/span><\/div>\n<\/div>\n<\/div>\nSelling your home<\/h2>\n
Cash-out refinance<\/h2>\n
Home equity loan or line of credit (HELOC)<\/h2>\n
Reverse mortgage<\/h2>\n
<\/span><\/div>\n<\/div>\n<\/div>\nRenting out your home<\/h2>\n
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