Home Equity as a Source of Retirement Income

There are a number of ways that the equity you build in your principal residence can serve to either create an income stream or provide access to an amount of capital. In either option, the receipts are free from taxation. You are not taxed when you take out a loan, and that’s really what you are doing, whether in the form of a reverse mortgage or a line of credit against the equity of your home. In either option, the idea is to be able to access some of the value of the equity in your property while still living there. After all, you can’t sell part of your house. The issue here is that you will then either have to service loan interest or run the risk of having a larger and larger amount of interest capitalizing and reducing the value of this asset when it is sold or it transfers to your estate.

It is a respectable objective to wish to remain in your own home. But that in turn is going to mean maintenance costs that could become higher as your home becomes older. And there may very well come a time when you either want to or have to move. Remember that while you may not be required to repay what has been borrowed while you live in the home, that payment will be due if you sell your home. What will you be left with after the proceeds of the sale are reduced by what you must pay back? And how will those reduced proceeds affect your options in terms of where you will live next? Obviously this would also affect the value of the estate if your home was sold after your death.

The decision to tap into the equity of your home should not be made lightly. In my opinion, this step should be taken only after other income-generating avenues have been explored, and then only as an action that is necessary to provide additional cash flow. You should also seek independent legal counsel and actively discuss this decision with other family members. The earliest age at which someone can entertain this strategy is 62, according to the institutions who provide the loans. I would certainly suggest that you wait until you are in your early seventies before considering this. That is why it is listed as the very last source of potential income. Investigate your options and compare the reverse mortgage and line of credit offerings before making any final decisions.

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