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Hamptons.com
April 11, 2013

Can You Turn Home Equity Into Retirement Income?

Rocco A. Carrieroby Rocco A. Carriero
in Real Estate
Home Real Estate

The long-struggling housing market is finally showing signs of recovery, giving many homeowners more equity in their properties. This encouraging trend is likely prompting more pre-retirees to consider if, and how home equity can be turned into a source of cash to help fund their retirement.

There was a time when owning a home with little or no outstanding mortgage balance was considered a potential financial bonanza for those in retirement. For years, home values moved higher, sometimes dramatically so. But starting in 2006, the bottom fell out of the housing market. Home equity was decimated and homeowners changed their expectations about the role equity can play in retirement.

Even with a lower value, home equity continues to represent one of the biggest assets for many Americans. It may play an even more important role when retirement savings come up short of expectations. Some already retired or approaching retirement feel like they have little choice but to tap the equity they’ve built in their home to support their cash flow needs throughout the rest of their lives.

The question then becomes how to do it. There are a variety of options available, but the right answer for you may depend on what plans you have for living arrangements in the future and many other factors.

Finding the Most Realistic Solution: There are risks in assuming that the equity you’ve built up in your home will be a guaranteed source of income in retirement. For starters, you will always need a place to live, so you can’t assume the full value of a home is at your disposal. Here are three primary options those in retirement generally consider:

Home Equity Lines of Credit (HELOC): Americans became accustomed to tapping their equity through HELOCS in the last 30 years, and though it is a reasonable option for an employed individual, it may be less practical for someone in retirement. HELOCs need to be repaid, and using the proceeds from a home equity loan to help fund retirement income needs often means taking on interest costs in order to generate that income. It’s important to note that an individual puts a lien on their home by taking a HELOC (second mortgage), and risks losing it should he or she fail to repay under the terms of the loan.

Reverse Mortgage: An alternative that has become popular with many retirees is to use a reverse mortgage. This allows a homeowner to tap into the equity of the home while still occupying it. A reverse mortgage provides payment to homeowners for the bulk of the value of their homes via a lump sum, a line of credit or periodic payments. In essence this is a loan to the homeowner paid back when the house is sold at some future date. However, interest accrues throughout the duration of the loan and upfront fees apply, so it can be expensive.

A standard reverse mortgage, also called a Home Equity Conversion Mortgage, charges a two percent mortgage insurance premium on the full value of the home. The government now offers a lower cost “Saver” loan with a mortgage insurance premium of just 0.01 percent of the home’s value, but applying a higher interest rate. Over time, the combination of fees and interest charges can significantly deplete the value of the home’s equity as it applies to income needs. Individuals who qualify for a reverse mortgage must also be at least 62 years old. The older a retiree is, the more he or she can receive from the home’s equity. Understanding the complicated terms of a reverse mortgage before signing on the dotted line is crucial.

Selling Your Home and Downsizing: The other way to tap a home’s equity is to sell it. Many retirees find they are ready to “downsize” their living quarters to a smaller home, townhome or condo. If the market is right, they can sell their existing home, buy a new place and have equity leftover to add to their retirement nest egg. Alternatively, they can pocket the full proceeds from the home sale and rent their living quarters or explore other living options. This will greatly bolster their retirement savings, but it also adds a new monthly expense they will need to fund throughout the rest of their retirement.

Home equity offers great potential value in retirement but, like any investment, is subject to the fluctuations of the market and may have tax consequences. If you plan to tap your home’s value to support your retirement, proceed with caution. Remember that the primary function of your home is to provide a roof over your head, and using equity to fund retirement requires careful planning.

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donations are accepted Wednesday through Saturday 10 AM through 1 PM by appointment 

located at 95 Main St East Hampton
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🚗 The Bridge IX⁠
📅 Sat, Sept 13 | 2–7PM⁠
📍 The Bridge, Bridgehampton⁠
Over 300 rare automobiles showcased across stunning landscapes.⁠
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🎬 23rd Annual Surf Movie Night⁠
📅 Fri, Sept 12 | 5:30–9PM⁠
📍 Southampton Arts Center⁠
Surfboard swap, live music & outdoor film screening. 🌊⁠
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🍝 San Gennaro Feast of the Hamptons⁠
📅 Sat, Sept 13 – Sun, Sept 14 | 10AM⁠
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Italian pastries, live entertainment & fireworks Sat @ 8:15PM 🎆⁠
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🎭 In Process: Roderick George⁠
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📍 Guild Hall, East Hampton⁠
A special in-process presentation of The Missing Fruit (Part I).⁠
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🎤 Sheena Easton at WHBPAC⁠
📅 Sat, Sept 13 | 8PM⁠
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Grammy-winning artist live on stage!⁠
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☕ Cars & Coffee⁠
📅 Sun, Sept 14 | 9–11AM⁠
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Classic & exotic cars, food, drinks & live music.⁠
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🛍 Hampton Vintage⁠
📅 Sun, Sept 14 | 10AM–5PM⁠
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Shop unique vintage finds!⁠
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🎶 Hamptons Festival of Music Finale⁠
📅 Sun, Sept 14 | 4PM⁠
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Featuring Cimarosa, Berlioz & Beethoven.⁠
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🍷 Wine Dinner with Pradorey at R.AIRE⁠
📅 Tues, Sept 16 | 6:30PM⁠
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Five-course tasting menu with exquisite wine pairings.⁠
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🎥 Toy Story 30th Anniversary Screening⁠
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Check out more events at Hamptons.com (Link in Bio)⁠
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#carshow #hamptons #sangennaro #sangennarofeast #winedinner #bridgeIX
  • The Animal Rescue Fund of the Hamptons (ARF Hamptons) hosted the Bow Wow Meow Ball in East Hampton. The evening’s honorees, Ellen and Chuck Scarborough, were presented with the Champion of Animals Award, recognizing their more than twenty-five years of support to ARF. ⁠
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Over 400 guests celebrated ARF’s remarkable work with cocktails, followed by dinner catered by Olivier Cheng. Peter Marino, accompanied by his daughter and ARF Board Member Isabelle Trapnell Marino, presented the Scarboroughs with their award. ⁠
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📸: Patrick McMullan/PMC⁠
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#Seafood #localeats #mtk #montaukgreen
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From the outside, it has that classic East Hampton charm, cedar shingles, white trim, and lush landscaping. But once you step inside, it’s all about quiet sophistication.⁠
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The space is warm and welcoming, with walnut wood paneling, soft neutral tones, and beautiful textures throughout. There’s a fluted marble wall in a rich green Verdi Alpi stone that immediately catches your eye. It’s one of those details that’s understated but unmistakably Rolex.⁠
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#rolex #easthampton #hamptons #luxury #watch⁠
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📅 Sun, Sept 7 • 11AM⁠
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