Buying a home to save for retirementBy Caitlin in Mortgage
Home ownership comes with many benefits. You’re no longer tossing your money down the rent drain, you don’t have to deal with landlords, and you know you always have a safe place to live. While these factors all appeal to the younger demographic, there is one thing that many people don’t think about: the advantages owning a home will give you when you decide it’s time to retire.
Chances are you don’t want to spend your entire life working. Maybe you dream of taking a cruise to an exotic location each winter or spending your money on happy grandkids; owning a home can help you achieve both dreams. Instead of thinking of your home as a payment, think of it as an investment. Each month you put in a little bit of money until you own the place – then, later on, when you need it, you can take that money back out. If you’re lucky and the market is booming, you can even make a handsome profit.
For homeowners over 55, a reverse mortgage allows them to obtain cash without needing to sell or rent their home. You can take out a reverse mortgage for up to 50% of the value of your house (the amount that has been paid off). While no monthly payments are required, interest does accumulate as your home equity decreases. If you opt to sell your house, you’ll need to pay off all of the interest that’s accumulated on the reverse mortgage.
Home Equity Line of Credit
If you need cash for a child’s college education or to do some much needed renovations, home owners are able to apply for a home equity line of credit. If approved, they’ll be entitled to a certain amount of credit relative to the home’s value – all because they owned their own home. Retirees can use this money to finance vacations, make any necessary payments, and even add upgrades to their home if they so desire.
Something that has become more popular among home owners is renting out a part of their house, whether it’s a single room or a full basement suite. For retirees, renting out a room can mean an extra influx of cash each month, effectively allowing the renter to finance part of their living expenses. Those who don’t own their own home don’t have this option, and may very well be stuck financing someone else’s lifestyle.
“Buy low and sell high” is the cry of the stock market. On a long enough time line, homes can increase in value. This means someone that paid $200 000 thirty years ago might be able to sell their home for $300 000 now – giving them an extra $100 000 to use in their retirement. While it’s great to have a big home for a big family, once all the children have moved out, many retirees find they don’t need the extra space. Instead of renting out unused space, they opt to sell their home, then use the profit to buy a new, cheaper, smaller home that’s more conducive to their lifestyle.
In the end, purchasing your own home can be a great investment in your future. Those who are home owners when they retire will have plenty of options thanks to their accumulated home equity.