Are you near retirement but have not saved enough cash? Do you know that you can use your home’s value as extra retirement fund?
Your home is essentially a bank of wealth of the money you paid for it throughout the years. The equity you’ve built up in it is a cash resource if only you know how to unlock it.
So, how do you unlock it? Below are 3 ways how.
Buy A Smaller House
Downgrading to a condo, a retirement facility, or a smaller house will leave you with plenty of spending money after you sold your current home. This is especially true for hot markets such as Toronto and Vancouver where selling now is very much in the favour of the seller right now.
But what if you wish to remain in your current home? Are there still ways to tap your home’s value then? There are! Two potential solutions are getting a home equity line of credit or getting a reverse mortgage. These are explained below.
Get a Reverse Mortgage
A reverse mortgage gives you flexibility because it allows you to get your money either as advanced in stages or as a lump sum. Another advantage is that there are no required principal or interest payments. You won’t be required to pay up the loan until you sell the property, move, or die – in which case your estate will be charged. What you will be required to do is to keep paying the insurance and property taxes for the lender.
Reverse mortgages does have disadvantages, the most notable of which is the high cost because the typical interest rate is double that of a conventional mortgage. Note that although you are not required to pay interest payments, they will be added to your balance increasing it significantly over a few years.
Apply for A Home Equity Line of Credit
Getting a home equity line of credit is a less expensive option compared to other choices like a reverse mortgage. A HELOC will let you borrow up to 65% of your home’s value and you can choose to withdraw only the amount you need. You won’t be required to make regular payments nor withdraw an initial amount.
Note that a HELOC requires regular interest payments (you only pay interest on actual withdrawn amount) and that getting approved might prove difficult if you wait until you are actually retired before applying for one because a key factor that lenders consider is having regular income – something you won’t have if you apply for a HELOC too late. Know too that failure to pay down the road will mean that you’ll be forced to sell your home. This is why you have to really evaluate if this is right for you.
Unlocking your home’s value in your retirement can help you in a lot of ways, but understand that some solutions might be better for your specific needs. Ready to tap your home’s equity now? Contact us and we will assist you each step of the way!