Personal finance columnist and financial planner Liz Weston says that for seniors who may have difficulty meeting all of their expenses in or near retirement, the employment of home equity – up to and including the possible use of a reverse mortgage – could be a notable difference-maker in the lives of some cash-strapped seniors.
However, to tap home equity you need to have a decent amount of it built up first, which is a problem that afflicts many seniors who still find themselves with a forward mortgage payment in or near retirement.
“You may still face big bills or have trouble making ends meet in retirement,” Weston writes in her latest column published by the Associated Press (AP). “In that case, your home’s equity could be helpful. You could access your home’s value by selling it, using a reverse mortgage or getting a home equity line of credit. But you can’t tap equity you don’t have. In 2016, 46% of homeowners age[s] 65 to 79 still had mortgage debt, according to Harvard University’s Joint Center for Housing Studies. The median balance owed was $77,000.”
Maintaining a mortgage into retirement is not particularly beneficial for many people, since there are few if any tax benefits and the necessity of making forward mortgage payments on a fixed income can cause retirement savings to dwindle at a quicker pace, Weston says, noting the perspectives of financial planners.
“Planners say you shouldn’t prioritize paying off your mortgage over saving for retirement and for emergencies,” Weston writes. “And you probably shouldn’t take money from retirement funds to pay off a mortgage. But once you’re on track with your savings goals, you could make extra principal payments to pay down the loan more rapidly.”
Maintaining a mortgage in retirement could also be avoided by opting for shorter loans when refinancing, she says. In a hypothetical scenario with a 50-year old, choosing a 15-year loan over a 30-year option could potentially be more beneficial for retirement, Weston says.
Getting a home “retirement-ready” is also a useful exercise for someone looking ahead to their post-working lives, and this could include eyeing certain renovations to make the home more accessible to an older person who may have or develop mobility issues, Weston writes.
“Grab bars in bathrooms, lever-style handles on doors and faucets, and rocker-style light switches (preferably accessible from a wheelchair) are relatively low-cost upgrades, for example,” she says. “Costlier changes include widening doorways and hallways, adding a curbless shower, installing non-slip flooring and creating a zero-step entry.”
Read the column at AP.