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Don’t Count on Home Equity to Fund Retirement

Many people are counting on the equity they have built in their home to help fund their retirement years. But folks who are living without quite enough saved for retirement should be realistic about what that equity can provide. Here are a few reasons to be cautious about relying on home equity to provide for you financially in retirement:

Your spouse will still need a place to live. Some people assume they can use the proceeds of their house if they ever need to check themselves into a nursing home. But you can’t sell your home for long-term care expenses when your significant other still needs a place to stay. Don’t assume you will be living by yourself by the time long-term care is needed or that your spouse will need it at the same time. Plus, the equity in your home may not even be enough to cover the cost of a nursing home.

The value of your home equity could change. Estimating how much equity you will have in your home if you ever need the money is just a guess. You might refinance in the future, and extend the date you will be totally debt free. House prices also tend to go up and down without warning. Plus, you’ll never know how much it will cost you to extract equity from your home if you ever need the cash.

Commissions and taxes will siphon off a big chunk of the value. The standard arrangement is asking the seller to pay the buy and sell realtors 6 percent of the final selling price. Then you have to contend with the possible capital gains taxes. Sure, $250,000 (or $500,000 for couples) of the gains can escape tax free, but inflation will make these seemingly large numbers much smaller in a few decades when you actually need to sell. You might also want to put the house on the market well before you actually need the cash. If you wait until the last minute you may have to sell the property at fire-sale prices because you are in a hurry.

Reverse mortgages can be very costly. Reverse mortgages allow you to continue to live in your home for the rest of your life while also getting some money, but you’ll get far less than what your house is worth. The fees andinterest rates for this type of loan are often rather high. Plus, if your circumstances change and you want or need to move, the loan becomes due. You may find years after taking out a reverse mortgage that you want to move out. If you don’t live there for whatever reason, you’ll need to start paying back that loan, which can be a huge strain on your budget.

Downsizing will net you less cash than you probably think. Many people hope to downsize and use the left over equity to supplement their nest egg. This is a great strategy because not only will you get some equity, but the cost of upkeep at your smaller place is likely to be permanently reduced as well. But be realistic about how much money you’ll gain from this maneuver. There are extra costs every time you move, so factor that into your calculations in addition to the commissions and taxes.

Home equity can certainly be tapped in case of emergencies in retirement, but often works best as a last resort. No matter what, you’ll always need a place to live.


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Posted In: EHR News

About The Author

Joseph Sabeh Jr.

Please let me introduce myself, I am Joseph Sabeh, Jr a full time licensed professional realtor. I have been with Executive Homes Realty for over 13 years and was trained by my late father and Broker, Joseph Sabeh. I recently incorporated the company and we moved the office to 43513 Mission Blvd just last summer. I could not have found a more honorable place to work. After earning my experience selling high end Ralph Lauren suits and studying business management in southern California, I decided to pursue my dream of selling real estate and working with my father. He had already had such an excellent reputation and established a niche market of high end clientele that catered to the very best. I wanted to become the consummate professional just like him and have strived to become just that being just a phone call or email away from getting back to my client’s immediate needs! Known by my clients for my tenacity, perseverance , and excellence in negotia- tion(Certified Negotiation Expert), I have always strived to meet my clients high demands and goals. As a result of my professionalism, I have achieved an extensive portfolio of referrals from past and present clients. I credit my current values from my upbringing of my parents and the credit is due to them without question. Their integrity, pride, and willingness to sacrifice for the better of my life and my sister’s always left a mark on me that one day I will pass on. Their desire to achieve a better life and live it to the fullest is one that some families dream of and I certainly am appreciative of all of the education and etiquette I have learned from them both. I have sold condos up to 3.2 million dollar homes and I am here for any and all of your future real estate needs and wishing you the very best experience in your future real estate endeavors with me.

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