Retirement and the Mortgage Loan
There is an untapped reserve of cash in our homes; it's the
equity we've built into our homes over the life of the mortgage,
or simply in owning our own home. If you're looking for a great
financial tool, learning to use the equity in your home to its
fullest extent is something we Americans aren't very good at
accomplishing. Fear of a loss is the number one reason we don't
utilize our equity asset. But, if you will take the time to
investigate many of the investment options available to us, the
risk is minimal, and the return is great. Especially now during
this period of extremely low interest rates, your home's cash
equity could be earning you a return of 18-20% in certain
investment funds. Even if you borrow money in order to cash out
the equity, you're making money. The interest you pay is
substantially less than the interest you're earning.
Why are we so reluctant to take out a second line of credit, or
increase our mortgage balance through refinancing? Many of
today's homeowners reaching retirement age do not fully
understand all their investment options, nor do they understand
how investments like growth funds work. They are very reluctant
to try anything that is beyond the sure bet of a certificate of
deposit. In so doing, they are missing a tremendous opportunity
to earn a greater return on their money, and let their money
work for them. Take a look at your 401k, where are your
investments? Are they earning 5-8-10%? Unless you're ready to
retire, your 401k should earn at least 6-8% on your investment.
Your home is earning you nothing on your investment, at least,
not in the sense that the money must stay in the home in order
for the home to increase in value. Quite honestly, your home
will appreciate in value if you do nothing but maintenance work
and live in it. Your equity you have in your home, can earn you
up to a 15% return, while you still are fairly safe with your
principal investment.
Speaking of 401k investments, are you investing the maximum each
year in your 401k? If you're self-employed, are you making use
of the SEP retirement options that reduce your tax liability? If
you're not, you should really consider the equity in your home
as an investment option for adding to your 401k, or establishing
an SEP that will allow you to invest your money in profitable
and fairly safe global and growth funds. There are still many
excellent opportunities in the stock market. There are segments
of the market that are experiencing phenomenal and stable
growth. The overseas markets, the domestic real estate markets,
and the energy markets are growing, and are expected to see
sustained growth. Put your money to work for you, especially if
you are several years away from retirement.
Another retirement option that involves a mortgage loan is the
reverse mortgage. This however, is not a way to build retirement
savings; it is a way to simply access the equity you've built in
your home, so that your monthly income levels are adequate to
sustain your most vital needs. Food, clothing, heat, and
medicines are a must as you reach or near retirement age. Many
times, the elderly are not as prepared financially as they
anticipated that they would be. How can they supplement their
monthly incomes? The reverse mortgage is the answer to many
older citizens' financial needs. The reverse mortgage allows a
person to withdraw a monthly sum against the equity they've
built into their home. The interest payments are deferred until
death, and the homeowner doesn't have to worry about making a
monthly payment, or borrowing money. They are able to use the
money they've already put into their home, just when they need
it most.
If you are past the age of 40, and you haven't taken the time to
consult with a financial analyst, I would recommend that you
seek out one that you can trust and that you are comfortable in
discussing your financial affairs with, and begin to look at
your retirement options, your retirement needs, and your ability
to meet those needs, based on your current income and savings.
What you may find is that you aren't near as prepared for
retirement as you thought. The monthly income needed will
probably greatly exceed your anticipations. But, if you own your
home, you may have just prepared more than you think!