With the impacts of inflation wreaking havoc on the finances of people across the country, seniors who are either at or near retirement may find themselves considering some new options in order to avoid being too heavily burdened by rising costs of living. One such potential path could be the tapping of home equity, according to a new column published by GOBakingRates.
“Some retirees sell their homes and move to more affordable housing, banking the money to live on in retirement or investing it for their later years,” the column reads. “If you don’t want to sell your home though, you may have other options to free up cash for retirement.”
One such potential option if a senior is at least age 62 could be a Home Equity Conversion Mortgage (HECM), the reverse mortgage program sponsored by the Federal Housing Administration (FHA).
“If you have reached age 62 and your home is paid off, you might consider a reverse mortgage, which allows you to tap into your home equity and receive monthly payments,” the column reads.
However, equity-tapping options exist for someone who does not qualify for a reverse mortgage, including home equity lines of credit (HELOCs) or home equity loans, the column reads.
“You may want to speak with your tax accountant before making this move, as there could be tax ramifications unless you put the money back into your house in the form of home improvements,” the column says of a home equity loan. “A HELOC, on the other hand, lets you borrow against your home’s value as needed. You can pay the money back as interest-only payments for a time, and any balance you borrowed will be due in 10 to 20 years, depending on the terms of your loan.”
Seniors may find that certain attributes of a HELOC may not be beneficial, according to a previously-published column at The Street. Among the pros and cons a prospective senior client should consider when thinking about getting a HELOC are the variable rate; that most HELOCs only allow a borrower to pay interest monthly; how interest paid on a HELOC is not always tax-deductible; and the manner in which the lending institution can abruptly cancel its HELOC program, that column said.
However, the GOBankingRates column also presented home equity tapping as an option alongside other, more mainstream tactics including general cost reduction, determining a “personal inflation rate” and downsizing a home.
Read the column at GOBankingRates.