If you or someone you know is planning for retirement, it becomes crucial they start thinking about the plans for their house. Typically you will be either downsizing, buying a new home, selling property, or looking at other options like a reverse mortgage. Your home is probably the biggest investment you made in your life. You raised kids in your home and created a lifetime of memories. The options that are in front of you might not sound like it is what you want, but it is important to plan ahead and prepare a life that fits you and your family
It is common that as you get towards retirement your house outgrows your needs. It can become a burden to you financially, your health and well being. General upkeep, maintenance, high mortgages, and bills can work against you when you are moving towards a smaller fixed income in retirement. Sometimes the only thing keeping people in their homes is emotional attachment. The last thing you want to do is jeopardize your well being and financial status on a home that is no longer suiting your needs.
Common Mistakes In Retirement:
Choosing to stay in a home that no longer suits your needs is problematic. No longer living close to your adult children could be a daily burden without help. If possible, moving close to family that can provide help is a great idea. It sounds dramatic, but injuries are very common when people try to work out of their comfort zone in their home.
From a financial standpoint, selling your home could help with retirement. If you own a home that is worth $400,000- $700,000, you could sell it and downsize to a home that fits you better for only a couple hundred thousand. Now you have money you can take and invest for the future. Living in a home valued above your true needs is not benefiting you financially.
Think about all the needs you will have in the future if you plan to downsize and move from your current home. The next property you buy should be manageable in square footage and have a community that will cater to an older generation. Driving will get harder and you will want public transportation options or specialized transportation. Access to stores and the community must be close by.
It is not uncommon to receive out of the blue offers on your home when you reach an age close or above retirement. It sounds like a good idea, sell your home so you can travel and do things you always wanted during retirement. Keep in in mind that people will low ball you in hopes you don’t check the value of your home.
I am Retired, but I have a Mortgage
A common thought process is taking your 401(k) and using it to pay off the rest of the mortgage. This may not be as good as an idea as you think. You could lose most of they money you saved for retirement, and the taxes and fees on 401(k) can end up costing you more money at the end of the day. Before you decide to give away your retirement, make sure you consult a professional on the best thing to do with your money moving forward. For example, It might be better to refinance your home. The bottom line: you have options and never make a big decision like this without doing your due diligence.
A reverse mortgage is considered a good or bad thing depending on who you hear talk about it. Most people don’t quite understand what it is, just see the commercials for them on TV. In very simple terms, a reverse mortgage works by you selling your home, but you don’t move out. The new owner of your home (a bank) then sends you money over time from your homes equity. You can spend the money and do whatever you want with it. When you die or sell, the money has to be paid back or the lender gets the house. This type of deal is for elderly people who have lots equity but don’t have enough income for expenses. The reverse mortgage will turn your home equity into something that will increase your monthly income.
With a reverse mortgage, think about:
- If you have children or heirs to leave your home with (could jeopardize it)
- Do you plan to stay at the home for a long time
- Cheaper ways to achieve financial goals
- Downsizing your home could be a better option
If you are thinking about a reverse mortgage, it might be a good idea to consult a housing counselor from the HUD (Department of Housing and Urban Development) before you make any big decisions. They charge a fee, but can help you understand everything you want to know.
Every Situation is Different
The retirement years cover a pretty large amount of time. Typically if you are thinking about this type of housing decisions you are probably looking at anywhere from age 40-80. In conclusion, pin pointing exactly what is right for you and your situation would be hard from this article alone.
Links for additional help and research:
Click here for: HUD website for information for seniors looking for housing options
Click here for: Government site for housing information for seniors
Click here for: Information and resources from the National Reverse Mortgage Lenders Association