House-Rich, Cash-Strapped: Advice for Older Homeowners
This article was first published on NerdWallet.com.
For many homeowners of retirement age, much of their net worth is tied up in their home equity, their home value minus any remaining liens. Home equity makes up 47% of the net worth of a median white homeowner age 62 or older, 81% of total net worth for older Black homeowners and 89% of total net worth for older Latino homeowners, according to the Urban Institute.
If you’re looking for ways to cover expenses after retirement, you may consider converting some of your home equity into cash. “There is no universally ‘best’ source of cash flow in retirement,” says Andy Panko, owner of Tenon Financial in Metuchen, New Jersey, and a retirement income certified professional. But those who hesitate to draw from their home’s well of equity “may be depriving themselves of a great source of cash flow during their retirement years.”
It’s important to think through what you hope to leave behind, if anything. If your goal is to leave your home as a legacy, “you should generally try to avoid having any form of mortgage against the property outstanding when you die” says Panko. However, if this isn’t your main priority, “it could make sense to ‘unlock’ the equity in your home and use it during your lifetime via some form of mortgage.”
Options include a home equity line of credit, home equity loan, reverse mortgage or home equity investment. The right loan product for you depends on your reason for needing the cash, says Anneliese Lederer, senior policy counsel for the Center for Responsible Lending in Washington, D.C.
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