Real Estate News and Articles of Interest
Using Home Equity To Afford Retirement
By Rudi Wimmern of retirementwow.com
A home equity loan is often a lifesaving solution for many retirees who want to keep their house and independent way of life. Since social security income does not always keep up with the cost of living, many people well into their retirement years turn to their home equity to subsidize
their lifestyle and remain in their house.
Is it wise to borrow against the home equity and expect to be able to continue to live in the house? For many retirees, it is important to stay in their family home where they may have lived for decades. In fact, tapping into the home equity through a second mortgage is actually
recommended for some. At this stage in life the loan does not have to be the same as a home equity line of credit that a younger family might want.
Home equity can also be used to finance another retirement home. Many elderly prefer to have another residence in warmer climates during the winter months. One way to afford this luxury is to take a second mortgage from the first home and put it down on another residence. Many of these second residences are manufactured homes, which are much more affordable than single-residence estates.
Retirees need to be careful about how they chose to use the proceeds from a home equity loan. We all know that many scam artists prey on the elderly. If the retirees are planning to buy a winter residence, they may fall victim to a "nice" salesperson who convinces them to make an unwise purchase far from home. However, owning a residence in a growing area in a retirement community may be a wonderful long-term investment worthy of the risk to home equity.
The most common type of second mortgage for those in retirement is called a reverse mortgage. Reverse mortgages allow the owner to borrow from the equity as long as he is
living. Every month, he receives from the mortgage company a "lifetime annuity" payment. As long as he continues to live in the house, he will get lifetime tenure payments. These mortgages are not as common as many would believe since this mortgage makes it hard
for the owner to will his house to another family member upon his passing.
As always, legal arrangements can be made. Arranged wills can be written such that the retiree can live in the house, use the equity to live on, and leave the house to a family member upon death. Another arrangement is called a living will. Under this arrangement, the property is deeded to a relative who becomes owner of the house. The reverse mortgage proceeds are signed over to the original owner, who can live on the equity. Any remaining equity in the
home when the retiree dies is automatically transferred to the living owner.
People are living longer than ever before and so are living longer in retirement. It is a contemporary challenge to determine how to meet living expenses for a long period
of time. Using home equity creatively may be an option.
Copyright 2005 Rudi Wimmern. All rights reserved.
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Rudi Wimmern is the owner and operator of Retirement Wow which is a premier resource for retirement information on the Internet. Be sure to visit his archive of articles here:
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