Home Equity Can Provide Planning Opportunities

If you are a homeowner, you've likely seen the value of your home increase substantially over the past 12 months. The January Case-Schiller national home price index showed home values increased over 19% in the last year. While home prices in Chicago have not increased as rapidly, they are up over 12%. Increased home equity can provide several planning opportunities for improving your retirement.

Take Out A Home Equity Line

Whether or not you are approaching retirement, a home equity line of credit can provide liquidity to cover unexpected cash needs. If you historically kept savings or cash for emergencies, your home equity line of credit can allow you to invest those funds while maintaining ready access to cash.

Downsize

If you are in or nearing retirement and don’t need as large of a home, you can unlock the equity in your home by downsizing. With demand for homes at record levels, you should be able to quickly sell your home for an attractive price. However, you will need to have a plan for where to live next. If you move to a lower cost geography or reduce the size of your home, you could invest the difference in price between your current home and your new home. Downsizing also tends to reduce ongoing costs such as real estate taxes, insurance and maintenance.

2nd Mortgage or Cash Out Refi

Another way to tap the equity in your home without selling is to take out a second mortgage or do a cash out refinance. This can provide cash to cover current expenses or a home improvement project or the cash can be reinvested to cover future expenses.

Note that recent tax law changes no longer allow deduction of mortgage interest expense for mortgages that were not used to purchase or improve your home.

Reverse Mortgage

This is a little used tool that can enhance retirement finances by tapping your home equity over time. The reverse mortgage can be set up as a line of credit or as a fixed reverse payment that you receive each month. The mortgage does not have to be repaid during your lifetime, and repayment is limited to the value of your home upon death. Your heirs can either sell the home to pay the mortgage or refinance the reverse mortgage if they want to keep the home.

Feel free to contact us with any questions you may have about taking advantage of the equity if your home.