bg_left_top.jpg

Iconic Financial Website...

Email me when new posts are made to this blog

Will your home be an asset you can use in retirement?

Written by Russell Johnson on April 8th, 2012.      11 comments

For most of us our home our single biggest purchase; and we were raised to believe that paying off our mortgage and owning our home is the key to our financial security.  Whilst it is true this is something we should all aim for, how much will home ownership contribute to our lifestyle in retirement?

Blogg house photo
 

Much of this thinking came from times of high inflation; in times of low inflation as we have now we need to ask ourselves if our home will appreciate as much as we expect.  The real cost of home ownership of course also includes the amount of interest paid over the term of the mortgage, maintenance, rates and insurance.  Markets also go down as well as up; consider the impact of a downturn in house prices just prior to your retirement.


Using the Equity in Your Home
To tap into the equity in your home comes with costs; you have to pay the interest costs on the money you borrow against your home.  Securing a traditional mortgage after you have retired and no longer have an income may be difficult, so it may be necessary to use one of the reverse equity mortgages that are now available.  With these you do not have to pay the interest until your house is sold, the interest will accumulate and could over time account for a good part of the value in your home.  Reverse equity mortgages do have a place in your financial planning.  If you outlive your retirement savings and are in a later stage of your retirement a reverse equity mortgage can be an excellent vehicle for maintaining your retirement income.  However they are best relied on as a backup plan and if used in the later stages of your retirement the impact of the compounding interest is dramatically reduced verses beginning the funding of your retirement this way.
Downsizing your home is of course another alternative.  If you have paid off your mortgage then you could sell your home and buy a smaller, cheaper house, perhaps in a less desirable area; living off the freed up capital.  Of course you would need to invest the freed up capital wisely so it continues to work for you until you need it.  More often than not though the amount of capital released will not fund your entire retirement.  At retirement people typically do not wish to trade down as much as they originally thought they would, therefore less equity than expected is released for retirement.
It is possible that your home will provide you with both a place to live in retirement and also some of the equity you need to contribute to your retirement lifestyle.  However it is also important to understand that you might not end up with what you expect.  You should consider making real estate a part of your larger retirement portfolio.  A Personal Financial Plan will help you to determine how your future may look relying solely on your home equity to fund your retirement verses using real estate in a broader portfolio.

 

 

11 Comments

This is where you can put some content before all your blog posts appear.
mahnoor says ...
The JNVST Result link will be provided on the official website of JNVST i.e. navodaya.gov.in.JNVST Result 2020 Himachal Pradesh Students will be able to download the Navodaya Vidyalaya Result Class 6 by entering their Roll Number and Date of Birth. Once the official authority has declared the result date. We will provide you the information on the Navodaya Result Date in this article.
Granite Countertops says ...
Attractive, post. I just stumbled upon your weblog and wanted to say that I have liked browsing your blog posts. After all, I will surely subscribe to your feed, and I hope you will write again soon! Granite Countertops
hotmail login english says ...
Wow, What an Outstanding post. I found this too much informatics. It is what I was seeking for. I would like to recommend you that please keep sharing such type of info.If possible, Thanks. hotmail login english
asimseo says ...
I have read your article, it is very informative and helpful for me.I admire the valuable information you offer in your articles. Thanks for posting it.. womenissues
jaheby says ...
this is really nice to read..informative post is very good to read..thanks a lot!
click here
jaheby says ...
this is really nice to read..informative post is very good to read..thanks a lot!
<a href="http://www.elliecrisell.net/">Health</a>
jaheby says ...
this is really nice to read..informative post is very good to read..thanks a lot!
<a href="http://www.elliecrisell.net/">Health</a>
Cassandra D. Everhart says ...
it is so commendable hence I am going to bookmark it...Tree Solutions Winter Garden
Patsy J. Moore says ...
The reason being that this is such an informative post. slither io games for free
Ryan Holland says ...
Innovation in instructive circuit is real contrast between old training and most recent training as it has turned into a fundamental part. Innovation is being utilized in the universities and in university assignment writers and schools superbly and helping in each instructive action.
Dona says ...
I am glad to see the things you shared Heeve Point is best.`