Retirement and the Mortgage Loan

There is an untapped reserve of cash in our homes; it’s theequity we’ve built into our homes over the life of the mortgage, or simply inowning our own home. If you’re lookingfor a great financial tool, learning to use the equity in your home to itsfullest 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 investigatemany of the investment options available to us, the risk is minimal, and thereturn is great. Especially now duringthis period of extremely low interest rates, your home’s cash equity could beearning you a return of 18-20% in certain investment funds. Even if you borrow money in order to cash outthe equity, you’re making money. Theinterest you pay is substantially less than the interest you’re earning. 

Why are weso reluctant to take out a second line of credit, or increase our mortgagebalance through refinancing? Many oftoday’s homeowners reaching retirement age do not fully understand all theirinvestment options, nor do they understand how investments like growth fundswork. They are very reluctant to tryanything that is beyond the sure bet of a certificate of deposit. In so doing, they are missing a tremendousopportunity to earn a greater return on their money, and let their money workfor them. 

Take a lookat your 401k, where are your investments? Are they earning 5-8-10%? Unless you’re ready to retire, your 401kshould earn at least 6-8% on your investment. Your home is earning you nothing on your investment, at least, not inthe sense that the money must stay in the home in order for the home toincrease in value. Quite honestly, yourhome will appreciate in value if you do nothing but maintenance work and livein it. Your equity you have in yourhome, can earn you up to a 15% return, while you still are fairly safe withyour principal investment. 

Speaking of 401k investments, are you investing the maximum each year in your 401k? If you’re self-employed, are you making useof the SEP retirement options that reduce your tax liability? If you’re not, you should really consider theequity in your home as an investment option for adding to your 401k, or establishingan SEP that will allow you to invest your money in profitable and fairly safeglobal and growth funds. There are stillmany excellent opportunities in the stock market. There are segments of the market that areexperiencing phenomenal and stable growth. The overseas markets, the domestic real estate markets, and the energymarkets are growing, and are expected to see sustained growth. Put your money to work for you, especially ifyou are several years away from retirement. 

Another retirement option that involves a mortgage loan is the reverse mortgage. Thishowever, is not a way to build retirement savings; it is a way to simply accessthe equity you’ve built in your home, so that your monthly income levels areadequate to sustain your most vital needs. Food, clothing, heat, and medicines are a must as you reach or nearretirement age. Many times, the elderlyare not as prepared financially as they anticipated that they would be. How can they supplement their monthlyincomes? The reverse mortgage is the answer to many older citizens’ financialneeds. The reverse mortgage allows aperson to withdraw a monthly sum against the equity they’ve built into theirhome. The interest payments are deferreduntil death, and the homeowner doesn’t have to worry about making a monthlypayment, or borrowing money. They areable to use the money they’ve already put into their home, just when they needit most.

If you are past the age of 40, and you haven’t taken the time to consult with a financialanalyst, I would recommend that you seek out one that you can trust and thatyou are comfortable in discussing your financial affairs with, and begin tolook at your retirement options, your retirement needs, and your ability tomeet those needs, based on your current income and savings. What you may find is that you aren’t near asprepared for retirement as you thought. The monthly income needed will probably greatly exceed youranticipations. But, if you own yourhome, you may have just prepared more than you think!