Senior couple relaxing at home in the kitchen together© JGalione / Getty Images
More boomers are retiring than ever before. According to CNBC, the baby boomer generation (those aged 46-64) will hit “peak 65” this year, with more than 11,200 Americans turning 65 every day (or over 4.1 million every year) from 2024 through 2027.
Your golden years, while exciting, can also bring financial challenges without proper financial planning. Luckily, there are several ways to leverage the equity and value of your home to add additional cash flow in retirement.
Here are three ways to leverage your home for retirement income, according to Experian:
Do A Cash-Out Refinance
A cash-out mortgage refinance involves taking out another home loan to absorb the remainder of your existing mortgage loan balance. You’ll go through a similar process as you did the first time you got a mortgage and your income, assets, debt and credit score will all factor into the approval process. The idea behind a cash-out mortgage refinance is that the new loan is significantly larger than your old one. It’s worth noting that lenders will typically allow you to borrow up to 80% of your home’s value. The cash balance from the loan that remains after your old mortgage balance is satisfied can be used for extra retirement income.
Here are some potential drawbacks:
- You’ll have to go through the mortgage application process again
- Your monthly payment might go up
- Your loan balance will go up
- You’ll have to pay closing costs of about 2-6%
Take Advantage Of A Reverse Mortgage
A reverse mortgage allows retirees to trade the equity in their home for cash. Your home is used as collateral, however, you don’t have to move or sell your home. A reverse mortgage can provide upfront cash with fixed monthly payments. While similar to a line of credit or a home equity loan, the one major difference is that a reverse mortgage does not have to be repaid. Instead, the lender gets repaid from the outstanding equity on the home.
This happens when any of the following occurs:
- You become delinquent on homeowners insurance, homeowners association fees, or property taxes
- You move
- You pass away
- You fail to keep the home in good condition
Reverse mortgages are typically available to those age 62 or older and have significant equity in their homes. The most common type of reverse mortgage is called a home equity conversion mortgage, which is insured by the Federal Housing Administration (FHA). As of 2023, these are capped at $1,089,300. It’s worth noting that you’ll still need to cover closing costs, home appraisal costs, and application fees.
If all your adult children have moved out of the house or you simply no longer need as much space, consider downsizing your home. By selling your home and purchasing something less expensive, you’ll be left with a nice lump sum of cash to put towards retirement.
Here are a few important factors to consider:
- The current housing market
- Your neighborhood
- The condition and age of your home
- Prices of comparable properties/homes in your area
Story by Adam Palasciano