Spending Home Equity

IF YOUR RETIREMENT savings are on the skimpy side, you might tap into the value of your home. Consider three strategies.

The safest strategy is to trade down to a less expensive home. Selling one home and buying another can be both costly and a hassle. Still, this has the potential not only to free up home equity that you can then spend, but also it may lower your living costs, including property taxes, utilities, homeowner’s insurance and maintenance expenses.

The least expensive but riskiest strategy is to refinance your home by taking out a 30-year mortgage for as much as the bank will let you borrow. Thereafter, you’ll have to make regular mortgage payments again, presumably drawing on the money you got in the refinancing. But if you do the refinancing late in retirement and your life expectancy is 10 years or less, the refinancing should leave you with money for other expenses. The risk: If you live longer than expected or you spend too freely, you might end up without money to pay the mortgage—and you’d be in a heap of trouble.

Finally, you might take out a reverse mortgage. With all the fees involved, coupled with the need for you or your heirs eventually to sell the house, this has the potential to be the costliest strategy. But as long as you’re careful, a reverse mortgage should allow you to stay in your home for the rest of your life.

Next: Reverse Mortgages

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