How You Can Fund For Retirement – The Madison Leader Gazette

Home values ​​and home equity have skyrocketed in the past year, according to a report from Unison.

If you are a homeowner, there is a good chance that your equity has increased in the past year. Soaring home prices caused by a pandemic-fueled real estate frenzy has led to a scenario in which homeowners in the United States are sitting on a record $ 22.7 in their home equity after earning 2 $ 700 billion in net worth in the past year, according to a new report. If you are nearing retirement and looking to leverage your home equity, there are a number of strategies you can consider, from downsizing to taking out a reverse mortgage.

A financial advisor can help you build home equity into your retirement plan. Find one today.

Rising home values

Home prices in the United States have risen over the past year at a rate not seen in four decades, according to research published by Unison, a real estate co-investment company. Citing the S&P CoreLogic Case Shiller Home Price Index, Unison noted that home values ​​were 18.6% higher in June than they were a year earlier.

As prices have skyrocketed, home equity has also increased, which is measured by the home’s value minus mortgage debt. As of July, 49 of the 50 largest metropolitan areas had registered an increase of at least 10% in median home equity from the previous year, according to the report. Meanwhile, all but four states also saw home values ​​increase by at least 10% from the previous year.

Home equity is highest in the San Jose-Sunnyvale-Santa Clara, California metropolitan area, where the median home value is $ 1.33 million. Homeowners in the greater San Jose area have a home equity of $ 950,271, according to Unison research.

But nowhere has a surge in median home equity as big as the Phoenix-Mesa-Chandler metropolitan area in Arizona. There, homeowners have earned 28.7% or $ 42,112 in home equity in the past year, with the median home value rising to $ 336,895.

“Driven by strong housing demand and tight supply, aided by government support and near-rock bottom mortgage interest rates, house prices were left untouched during the COVID-19 pandemic,” wrote the report’s author, Winfield Xu. “As a result, there haven’t been many notable declines in home equity in major metropolitan areas.”

How to convert home equity into retirement savings

Home values ​​and home equity have skyrocketed in the past year, according to a report from Unison.

But the question remains: How do you convert all that home equity into retirement money? Here are several strategies for leveraging the equity in your home.

Upgrade to a smaller house or rental

The most obvious option is to sell your house, buy a smaller one, and pocket the difference. Some retirees who are downsizing give up buying a new home altogether and instead opt for renting. These retirees are less likely to be interested in building equity in their home over decades and instead view their home as an expense, not an investment.

Refinancing of collection

For retirees who don’t want to relocate, cash refinancing may be a viable option. A cash refinance is a new loan that replaces your existing mortgage. While other types of refinancing can result in a lower interest rate or change the length of your mortgage, a cash refinance leaves you with a new mortgage for an amount that is more than what you currently owe. You then collect the difference in cash.

Although cash refinancing produces a tax-free lump sum of money, there are risks and drawbacks associated with this type of transaction. In addition to paying the closing costs, you also give up the equity that you probably worked to build. And if the home’s value drops, you could end up owing more than the home’s value. Then again, if you’ve made a commitment to stay in your home and your retirement income can cover your monthly mortgage payments, a withdrawal may be an option for you.

Reverse mortgage

If you are at least 62 years old, you may be eligible for a reverse mortgage. Like a cash refinance, a reverse mortgage allows a homeowner to leverage their home equity to cover expenses or meet income needs in retirement. Unlike a cash refinance, however, you can receive the money in the form of monthly payments, a line of credit, or a lump sum payment.

A reverse mortgage only needs to be paid off if you die or your home is no longer your primary residence. If you die after taking out a reverse mortgage, your heirs will either have to sell the property or use other funds to pay off the loan and retain ownership of the house.

Convert your home into a rental

Retirees who have the energy and the drive to own a home can combine some of the above strategies to create a new source of income. If you own your home completely, you can take out a mortgage on the home and use the cash injection to cover your retirement expenses, including buying a smaller home or renting an apartment. . By converting your primary residence into a cash-generating rental property, you will keep the house and use the monthly rent to cover your mortgage payments. pocket whatever is left. Assuming that the property remains rented, it will be a valuable asset to bequeath to your heirs as part of your estate.

Final result

Home values ​​and home equity have skyrocketed in the past year, according to a report from Unison.

Home values ​​and home equity have skyrocketed in the past year, according to a report from Unison.

The massive gains the housing market has made over the past year have allowed homeowners to sit on home equity of $ 22.7 trillion, according to a Unison report. If you are nearing retirement or have already retired, tapping into your home equity can be a viable way to supplement your retirement income. Downsizing, cash refinances, and reverse mortgages are all ways to convert home equity into cash for retirement.

Tips for planning for retirement

  • Social Security is an important piece of the retirement planning puzzle for many people. Knowing your benefit amount is essential to creating a plan that supports the lifestyle you want to live in retirement. SmartAsset’s free social security calculator can estimate your benefit amount based on your age and income. Try it now.

  • A financial advisor can help you plan for your retirement. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is best for you. If you’re ready to find an advisor, start now.

Photo credit: © iStock.com / Andrii Yalanskyi, © iStock.com / Zinkevych, © iStock.com / twinsterphoto

The article Homeowners Sitting On Record Equity: How You Can Capitalize For Retirement appeared first on the SmartAsset blog.

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