If you’re like many federal workers, your most valuable asset is your home. Commonly known as home equity, housing wealth among homeowners age 62 and older has grown to a record high of $11.81-trillion in 2023.*
If you’re close to separating from service, this may be a good time to consider using your home equity to help pay for a range of retirement needs:
- Purchase LTC insurance to cover the cost of long-term care in a facility.
- Invest in a fixed annuity that provides retirement income for life.
- Or, pay for a smaller home in full and enjoy a mortgage-free retirement.
The Most Obvious Strategy: Sell Your Home
If your family-size home has become an empty nest, selling it to access the equity can provide a number of advantages. In addition to a sizable lump sum of cash, you won’t have the expenses that go along with a big house: cleaning, repairs and basic maintenance plus higher utility bills, homeowners’ insurance and property taxes.
Once your home sells you can use the cash to buy a smaller home outright and eliminate one of the biggest expenses in retirement: housing. Or, you can rent a smaller home and leave the responsibilities and expenses of homeownership to your landlord.
Rent Out Your Current Home For Added Income
If you’d rather keep your home in the family and pass it on to your kids, you can still turn it into a retirement nest egg if you rent it to another family. The money it generates becomes another source of retirement income that can be used to pay for a range of needs while the value of your family home continues to grow into a legacy you leave behind for loved ones.
“Known as “Cash-Out Refinancing,” it’s a good idea if the current interest rates on a 15-year mortgage are less than the rate of your existing loan or even a point or two higher.“
Refinance Your Home To Access Equity
Depending on the current mortgage interest rate, you may want to consider refinancing. Known as “Cash-Out Refinancing,” it’s a good idea if the current interest rate on a 15-year mortgage is less than the rate of your existing loan. Even if the rate is a point or two higher, you’ll be paying off the mortgage quicker and saving on interest in the long run. Lenders usually let you cash-out about 80% of the home’s current value. An alternate option is taking out a home equity line of credit (HELOC) that enables you to access your equity only when you need it.
Before you make a final decision, connect with an FRC® trained advisor who can help you determine the best strategy for your financial situation.
*https://www.nrmlaonline.org/about/press-releases/senior-home-equity-exceeds-record-11-81-trillion
