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The concept of using home equity to fund retirement is not very popular with me. Many people seem to be banking on tapping into their home’s equity but I can’t help wondering what happens in the long run. I guess if you plan to pass away early then not much damage there. But if you plan to live a long, full life then the idea that home equity is slowly disappearing leaves one less than secure. Another aspect of this strategy that I dislike is the fact that I would be paying interest on the money the lender provides, after all, they don’t do it for my benefit. Since the interest is a function of the total amount they would lend me (yes it is a loan), it will amount to a sizeable liability over time. In effect, my home equity would run out faster than I might think. So what then? If that were my strategy I would eventually be cooked. A safer bet is to view home equity as a safety net rather than a piggy bank. There may come a time when I really need that equity to fund a retirement community or senior home. Aging happens whether I like it or not. If home equity is the only avenue I have to fund my retirement then I’m better off working, or selling the home and downsizing to release equity. Either way, I wouldn’t get eaten up by the money lenders. Another negative is the slow loss of freedom that reverse mortgages imply. Since the home equity slowly disappears it stands to reason that freedoms disappear along with the equity. The long term affects are a loss of freedom and a loss of flexibility, which go hand in hand. No, reverse mortgages are not for me. Comments1 Comment so far |
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[…] cameron wrote a fantastic post today on “Home Equity and Retirement”Here’s ONLY a quick extractThe concept of using home equity to fund retirement is not very popular with me. Many people seem to be banking on tapping into their home’s equity but I can’t help wondering what happens in the long run. I guess if you plan to pass … […]