Factors Retirees Should Consider Before Paying Off a Mortgage or Selling
While finding peace and contentment in a “forever home” is the dream of many American adults, retirees are increasingly looking for experiences rather than possessions. Living the lifestyle you deserve can mean making a tough decision between sell your house and pay off the mortgage.
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Owning a home is still the cornerstone of the widespread aspiration of many to live more comfortably than their parents. But times are changing. For many people, retirement is the first time since young adulthood that they have the opportunity to decide where they want to live.
For some, maintaining a larger-than-necessary home when their adult children are gone is an expense that can be driven by emotional factors. Speaking to Next Avenue, Bret Ceren, real estate agent and associate broker at Platinum Living Realty in Scottsdale, said: ‘Some people may choose to keep the house for sentimental reasons or because they can house relatives during the holidays. or at other special times.
If you want the relief of paying off a mortgage and the stability and comfort of staying in your home, then selling it doesn’t make sense. But many people are open to a different life in retirement, and there are many factors to consider when deciding whether to sell or stay in your home.
The costs of staying in your home and how to pay for them
Besides day-to-day expenses and unexpected expenses for home repairs, “there is a risk of increased property taxes and HOA (homeowners association) fees” if you want to stay in your home, says Maureen Murano, financial advisor at Northwestern. Mutual in Denver.
Also, as you get older, mobility becomes a serious issue. General upkeep and cleaning of a large house can become daunting tasks and stairs – seldom thought of before – can become a dreaded daily obstacle to doing anything. The layout of your home may have worked when you were younger, but when you reach retirement age, it may need some serious and costly restructuring.
A key step in planning for independence is to assess your home to determine if it can meet your changing needs as you age. For example, you may choose to widen the doors of your home to allow access for a walker or wheelchair or to install a chair lift or elevator.
Many people looking for ways to pay for the lasting or new expenses that come with staying in their home are turning to home equity lines of credit (HELOCs) or reverse mortgages instead of selling.
“Depending on your financial situation, home equity lines of credit or refinancing into a smaller loan can allow you to access a significant portion of your home’s value without selling,” says Leah Dirks, President of Mortgages and consumer at FirstBank in Denver.
Although borrowing against your home equity comes with the risk of losing your home if you can’t repay it, this second mortgage option allows you to borrow at a lower rate than a regular loan.
Another popular option is the reverse mortgage, which is a federally insured home equity loan that can be used by homeowners who are at least 62 years old.
“By borrowing from their own equity, seniors gain access to cash to pay for cost-of-living expenses later in life, often after they have exhausted other savings or sources of income,” Forbes says.
If you’ve ever thought about investing in a rental property, the home you already own could be the perfect place to start. You won’t have to sell your house, but you will have to move out. As Candice Williams, realtor at Coldwell Banker Realty in Houston, Next Avenue, puts it, “If your financial goals include building a real estate portfolio or owning an investment property, consider keeping the home to generate income. rental income.
Plus, if your home would make a good rental property or vacation rental, you can potentially use up to 75% of its rental income to qualify to buy a new home, according to Next Avenue.
Things to consider when selling your home
If you decide that your home no longer meets your needs or that you can no longer live safely and independently in your home, learn about the options available in your community. These may include moving to a more accessible or smaller home or exploring senior housing options such as assisted living or long-term care.
Of course, if you decide to sell your home, be sure to consider the tax implications. Per TurboTax, up to $250,000 of the profit from the sale of the home ($500,000 if you’re married and filing a joint tax return) is tax-exempt if you’ve lived in the location for two of the five years preceding the sale. If your profit exceeds the $250,000 or $500,000 limits, the excess is reported as a capital gain.
As NextAvenue notes, you might have other reasons for deciding to sell your paid-for home, such as wanting to give your kids money, pay bills, or travel the world. Whatever decision you make, avoid falling into a financial dilemma when moving after the sale.
“Make sure your next move – whether to rent or buy another home – doesn’t expose you to a higher level of monthly living expenses that could put your finances at risk,” Williams warns.
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This article originally appeared on GOBankingRates.com: Housing Market: Factors Retirees Should Consider Before Paying Down a Mortgage or Selling