Sometimes when a senior is deciding how best they can remain in their home for the full duration of retirement, making changes in a few key areas of life can be a big difference-maker. For others, who may have more prominent issues with their retirement funding source, then the prospect of employing home equity is not one that should be overlooked depending on an individual situation. This is according to a new column published by the Canadian arm of mortgage rating firm Morningstar.
“Housing costs can be a source of significant financial strain, magnified by income reduction,” the column reads. “However, many retirees are reluctant to entertain the idea of selling the house and moving out due to a strong emotional attachment to their current residence and the comforts and conveniences it provides.”
There are several potential options available to retirees depending on what their individual financial situation looks like. For a younger senior who already feels like they may be spending too much time at home, sometimes the ability to work a part-time job to cover some costs or to add additional income could be an ideal choice.
“There are many part-time jobs that seniors can pick up based on their experience, skill-set, expertise and interest,” the column reads based on input from a financial advisor. “To many people, retirement means scaling back, not entirely giving up, their current job they have been doing for years. It’s not uncommon to see people setting up a private consultancy business in retirement to capitalize on the expertise and professional network built over the years.”
Some retirees may also have the flexibility to open up their home or another owned property to the prospect of a tenant, creating a stream of rental income. A smaller-scale version of this can be seen with some seniors opting to use their time away from home to post their home on online accommodation sites such as Airbnb.
Of course, though, another potentially viable option can include the tapping of the equity built up in the home through a financial instrument like a home equity line of credit (HELOC) or a reverse mortgage, the column explains.
“You could use a reverse mortgage to tap into your home equity during retirement and use tax-free cash from the line of credit to finance some of your expenses while still living in your home,” says Tina Tehranchian, a senior wealth advisor with Assante Capital Management. “[However], this will reduce the estate you will leave for your children and you also have to make sure you can afford to pay the monthly interest on the line of credit.”
There are some key differences between the reverse mortgage product offered in Canada when compared with the United States Home Equity Conversion Mortgage (HECM), as sponsored by the Federal Housing Administration (FHA). Some of the debate concerning reverse mortgages in America are similar to those in Canada, but an individual senior should do his or her own research to determine which options may be best for the unique elements of their own situation.
Read the column at Morningstar.