Tapping into Real Estate Equity
By the time people retire, many have built up some equity in real estate, most commonly their homes. Sometimes this equity can be used to cover emergency expenses or fund other priorities. Here's a few ways to use real estate equity other than selling the property. Consult with your tax advisor for more information concerning your individual circumstances.
In General
Tapping into your real estate equity is a pretty significant decision and one that cannot be reversed easily, if at all. First, consider what you're trying to accomplish and whether using your real estate equity is the best solution. Then carefully weigh the costs and benefits of whichever approach or approaches you're considering. Every option - even an outright sale - has costs, some greater, some less. Just make sure you're getting the best deal for your equity, and that it's truly working to help meet your goals.
Refinancing
One option is to simply refinance the property. Refinancing pays off your existing mortgage, if any, and starts you off with a new one. Depending on the size of the new mortgage and the interest rates in effect at the time, you could end up with better terms than before.
Home Equity Loans
Another option is a home equity loan, where you borrow against the value of your home, which acts as collateral.
Reverse Mortgages
A reverse mortgage may be available if you are at least 62 years old and the real estate is your principal residence. Reverse mortgages provide a loan up front based on your home equity. Paying the loan and interest is deferred until the property is no longer your principal residence. At that point the loan is repaid through the sale of the house, by your heirs, or by your estate.
Note that reverse mortgages are very complex. In fact, you are required to complete an FHA-approved class and demonstrate that you understand reverse mortgages before you can even begin an application. This includes knowing what other options are available that can better meet your needs.
If you start thinking about a reverse mortgage, you may want to get more information from the US Department of Housing and Urban Development (www.hud.gov), the AARP (www.aarp.org), or the non profit National Foundation for Credit Counseling (www.nfcc.org).
