Maximizing Home Equity: Top Strategies for Boomers to Boost Retirement Income
More baby boomers are retiring now than ever before. According to CNBC, the baby boomer generation (those aged 46-64) will reach “peak 65” this year, with over 11,200 Americans turning 65 every day, which amounts to more than 4.1 million annually from 2024 through 2027.
Retirement can be an exciting phase of life, but it can also bring financial challenges if you don’t plan properly. Fortunately, there are several ways to use the equity and value of your home to generate additional income during retirement.
Here are three methods to leverage your home for retirement income, as suggested by Experian:
**Do A Cash-Out Refinance**
A cash-out mortgage refinance involves taking out a new home loan that pays off your existing mortgage balance. This process is similar to when you first got your mortgage, considering your income, assets, debt, and credit score for approval. The new loan is typically larger than the old one, allowing you to borrow up to 80% of your home’s value. The remaining cash after paying off your old mortgage can be used for extra retirement income.
However, there are some potential drawbacks:
– You’ll need to go through the mortgage application process again.
– Your monthly payment might increase.
– Your loan balance will rise.
– You’ll have to pay closing costs of about 2-6%.
**Take Advantage Of A Reverse Mortgage**
A reverse mortgage allows retirees to convert their home equity into cash without having to move or sell their home. Your home serves as collateral, and you can receive upfront cash with fixed monthly payments. Unlike a line of credit or a home equity loan, a reverse mortgage does not need to be repaid until certain conditions are met, such as:
– You become delinquent on homeowners insurance, association fees, or property taxes.
– You move out of the home.
– You pass away.
– You fail to maintain the home in good condition.
Reverse mortgages are generally available to those aged 62 or older with significant home equity. The most common type is the home equity conversion mortgage, insured by the Federal Housing Administration (FHA), with a cap of $1,089,300 as of 2023. Note that you’ll still need to cover closing costs, home appraisal costs, and application fees.
**Consider Downsizing**
If your children have moved out or you no longer need as much space, downsizing your home can be a smart move. By selling your current home and buying a smaller, less expensive one, you can free up a substantial amount of cash for your retirement.
When considering downsizing, keep in mind:
– The current housing market conditions.
– The state of your neighborhood.
– The condition and age of your home.
– Prices of comparable properties in your area.