On average, you can live for 20 more years after retirement. That is so much a time to live without your regular salary. This makes retirement planning crucial for anyone who wants to enjoy a financially sound old age.
Aside from saving and investing, several other ways to secure your financial future exist. This includes leveraging the power of your home. Homeowners, without any substantial passive income, can harness their homes’ power (equity) during retirement. Buying a home is a considerable investment and one of the most valuable assets you can have. As such, it can contribute significantly to your financial wellness during retirement. Here are some ways to harness the power of your home.
Renting out a portion of your home
For the sake of your children, you bought a big home with several rooms. But at the retirement age of 65, your children may have moved out, leaving some rooms unoccupied. Instead of gathering dust, you can rent these rooms for a steady monthly rent. If you don’t want to share the main house with tenants for privacy reasons, you can rent out the basement or even repurpose the garage for rent. The monthly rental income can supplement your pension funds and other passive incomes.
Securing a home loan
Homeowners can assess several types of loans using their homes. You can access the following home loans depending on your financial needs and long-term plans.
- Reverse mortgage
Homeowners 62 years and above who need cash can use their homes for a reverse mortgage. This type of home loan allows homeowners to convert a portion or all of their home’s equity into cash without selling it. A reverse mortgage works differently compared to the other types of home loans. With it, you only repay the loan when you decide to sell the home or die. You continue to have full access to your house until you decide otherwise.
After your demise, the lender comes in to sell the home to repay the loan. Any remaining balance goes to your heir. Depending on your needs, a reversed mortgage loan can be disbursed in a lump sum, credit line, or monthly payments.
With a reverse mortgage calculator, you can check how much loan you can access even before contacting a lender. Like any other loan, it’s advisable to carefully evaluate the terms and conditions of the loan before proceeding with the loan.
Home equity loan
If you have substantial home equity, you can access a home equity loan or line of credit (HELOC). These loan options allow homeowners to convert some of their home equity into cash. That is, you borrow against the value of your home while still maintaining your home ownership. The funds obtained can be used to cover significant home expenses.
You acquired a large home due to your large family size. However, your children have now moved out, and the house no longer serves its primary purpose. In such a situation, sell your large home for a small one. Acquire something small that is affordable and serves your retirement and old age needs.
The new home can offer more equity, while you can invest the extra money into something profitable that can provide you with monthly stipends.
Put the entire home on rent
Loneliness kills, so in old age, some people may prefer moving in with other family members but wouldn’t want to sell their homes. If you have such an arrangement, renting out your entire home is prudent. This will provide a steady income stream to supplement your monthly pension and retirement lifestyle and cater to some maintenance repairs.
List extra rooms online
You can consider short-stay tenants if you cannot live with long-term tenants. Online rental marketplace like Airbnb, Rent.com, etc. connects homeowners with people looking for long-stay and short-stay accommodation. So, you can register on any of these websites and list your extra rooms there. On Airbnb, you set your own rates and decide when rooms are available and which tenant to give your rooms to. You can have your room anytime you want, and this helps you from having to deal with troublesome tenants.
Owning a home shouldn’t just be for accommodation purposes. With the kind of investment that goes into purchasing and maintaining a home, you should include “harnessing its power” in your retirement plan. Your home can be an effective financial tool when in dire need of money and during retirement. Aside from leveraging the equity in your home for loans, you can also consider strategies like renting out empty rooms or downsizing. Don’t borrow against your home’s equity unless you are in dire need of money because it can lead to you losing your home.