Home equity is the value of what you own of your home. This value begins with the down payment you make on the house and it increases as you make your mortgage payments. In other words, it’s how much of your home you own. When you retire, the equity of your home can be quite useful.
Use It as an Income Source
Before retirement, you save up as much money as you can make sure you are financially secure. However, it can be difficult to save up enough. It’s also beneficial to have some extra money to keep you comfortable. You can actually use your home equity to give you more money during retirement.
This is done through a home equity loan. With this type of loan, you receive a loan based on the equity of the property. You then pay back this loan over time. Keep in mind that failing to pay back the loan can result in foreclosure.
Downsize Your Home
When you have higher equity in your home, it means you can walk away with more money after the sale. Selling your home allows you to pay off your mortgage and then put your money toward another home. Downsizing your home means you are paying for less and you can pocket the difference between the sale proceeds and the cost of your new home. This strategy makes a lot of sense for those in retirement.
During retirement, it doesn’t make sense to have a large home. There’s more maintenance to be done and the space isn’t necessary. Downsizing can also benefit your health and safety. A home with stairs might not be ideal in retirement. You can find a smaller, more manageable home in which to spend your retirement.
Invest Your Money
If you opt to get a home equity loan, you are left with a large sum that can be used for your current wants and needs. However, you can take things a step further and invest this money. Many people choose not to invest because they don’t believe they have the funds for it. A large loan gives you plenty of money to invest. You can grow your savings and build up a nest egg to ensure you live comfortably in retirement. Just make sure you opt for low-risk investment options. You’ll still need to be able to pay back the home equity loan.
Home equity is a tool that isn’t always tapped into. When you get to retirement, you want to take advantage of all your financial opportunities. Determine what your home equity is and start reviewing your potential options.
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