Is Your Home Your Retirement Fund?
For many senior citizens their single largest financial asset is the equity in their home. According to Government sources 60% of homeowners aged 65-74 have paid off their homes. Because so many careers did not offer retirement plans, many retirees’ incomes are based almost entirely on Social Security benefits.
With the recent rise in home values homeowners are discovering they have a very large amount of equity in their homes. This can be a huge blessing to those entering their “golden years”. The question is how to access that equity and turn their paper gain into cash. There are basically two ways to get cash out of your equity. 1) Borrow against it. 2) Cash out by selling.
BORROWING Your Equity:
Advantages:
- Loan proceeds are typically not considered taxable income.
- Interest paid may be tax deductible.
- You retain ownership and remain in your home.
Disadvantages:
- Up front cost of borrowing: loan fees, appraisal cost, filing fees.
- Monthly payments, except with a Reverse Mortgage.
- Risk of foreclosure in the event of default.
- Heirs left with unpaid debt in event of death of borrower.
SELLING Your Home:
Advantages:
- Often proceeds are a non-taxable event. (ask your accountant)
- Lump sum received at closing.
- Take advantage of current market value.
- May simplified estate issues.
Disadvantages:
- Need to move. (unless you get a rent back option from buyer)
- Disposing or moving all personal property.
- Possible repairs needed before selling.
- No longer own this home.
BOTTOM LINE:
Everyone’s situation is unique. Take careful consideration and do your research. It is a good idea to consult with your tax accountant, attorney, and Seniors Real Estate Specialist© before making such an important decision.
