America’s Mortgage Solutions – 3 Ways to Use Your Home Equity for a Smooth

Retirement is a significant life milestone where you can finally relax and enjoy your hard-earned golden years. However, it’s not something that randomly happens. We recommend you plan it thoroughly, including how you’ll spend your home equity.

Over the previous year, the typical American homeowner gained approximately $64,000 in equity because of the home price appreciation. Whether you’re newly retired or planning your retirement, you might consider your options for this new life milestone.

This article will discuss home equity and enumerate three ways you can convert your home equity into money for a smoother retirement.

What Is Home Equity?

Home equity is the ownership amount you have at home. It’s usually a big chunk of a retiree’s net worth—the value of all assets minus the debts. You can easily calculate it by identifying your home’s value and subtracting your outstanding mortgage balance and other liabilities.

Assuming you have $100,000 remaining on your mortgage and your home’s appraised market value stands at $400,000, you’ll have a home equity of $300,000. How you fund your retirement using your property can be significantly influenced by how much home equity you have.

How to Maximize Your Home Equity for Retirement

After discussing home equity, this section will enumerate three ways to use your home equity amount for a smooth retirement.

1. Turn Your Home into a Rental Property. Converting your home into a rental is one of the best ways to maximize your home equity funds because people are always looking for properties for rent. Retirees willing and have the energy to be a landlord can combine cash-out refinancing and downsizing their home to create a new income stream. If you entirely own your home, you can shell out a mortgage on the property and maximize the cash infusion to handle your retirement costs, including renting an apartment or buying a smaller home. When you convert your primary home into a cash-flowing apartment, you can keep your home, use the monthly rent to pay your mortgage, and pocket the remaining money. Assuming that people will keep renting your space, you can leave a valuable asset to your heirs as a part of your estate. 
2. Downsize Your Home. Selling your home, purchasing a smaller property, and pocketing the difference can also help you to maximize your home equity for retirement. Downsizing your home allows you to find a new location with lower taxes and living costs. It can also help reduce your maintenance costs and lower utility bills, which can help further increase your income. However, some retirees who downsize wouldn’t want to buy a new home and choose to rent instead. They’re less likely to be interested in building home equity for several decades, and they’ll probably treat their property as an expense, not an investment.
3. Opt For Cash-Out Refinancing. Lastly, a cash-out refinance works best for retirees who don’t want to move or sell their house. Cash-out refinancing changes your current mortgage with a new loan. Other refinancing types can lead to lower interest rates or change your mortgage’s length, but a cash-out refinance is a new mortgage that exceeds what you owe now. You’ll later collect the difference in cash. While choosing cash-out refinance can give you a stash of tax-free cash, this transaction has its risks. Besides paying closing costs, you’ll also give up the equity you’ll presumably work to build. If the home’s value drops, you could also owe more than the home’s worth. However, if you want to stay in your comfortable home and your retirement income can fund your monthly mortgage payments, cash-out refinancing might be your best option.

Retiring to Earn

There’s no correct answer to finding a suitable way to use home equity to achieve your retirement goals. It will always depend on your specific personality, objectives, and needs.

America’s Mortgage Solutions is a mortgage company serving the North Palm Beach area. With our team of experts, we want to ensure your smooth and stress-free home purchase or refinance experience. We also serve clients across South Palm and Florida. Call us at (561) 316-6800 or visit our website to schedule a time with our loan officers!