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Your home is your shelter, and also an important part of your retirement security. A home that is paid for and fits your needs can be a tremendous asset in retirement.
Even if it is paid for, however, you will continue to spend money on property taxes, homeowners' insurance, maintenance, repairs and utilities.
Find out whether reduced rates for any of these items are available to seniors in your area. For example, seniors who meet income requirements may be eligible for reduced property taxes or assistance with utilities.
Option 1: Sell your home and downsize or rent
If your home has become too difficult to keep up or too big since the kids have moved out, you may want to sell it and move to a smaller house, condo, or apartment. If the home has been your primary residence for the last two years, there generally won't be any income tax on up to $250,000 in profit when you sell ($500,000 if you're married).
Tip: Don't add a child (or another adult) to your deed without talking to a tax adviser. This could cost your child a lot in taxes later on, and you won't be able to reverse the decision.
Option 2: Turn a home into an investment.
For extra income, you might consider renting out part of your home to a student. Or if you have a child or grandchild of your own going away to college, buying a house or condo in that town could give him or her a safe place to live, and provide you with a source of steady rental income later. A vacation home could also become a good investment, generating potential tax deductions as well as retirement income from rentals.
Option 3: Look into a reverse mortgage.
The problem with your home as an investment is the difficulty of getting money out of it. Even if it's worth a small fortune, the only choices have traditionally been to take out a home equity loan (which you'll have to repay) or sell the house and move out. That's why reverse mortgages have become so popular lately with retirees who need income but want to remain in their home.
When you get a reverse mortgage on your home, the lender will do one of the following:
- Give you a lump sum that you can spend, invest or use to buy life insurance
- Send you a fixed amount of money every month for the rest of your life
- Provide a line of credit that you can draw against when necessary
How much you will be able to get depends on your home's value, your age and current interest rates.
The advantage of a reverse mortgage over a traditional equity line of credit is that it doesn't need to be paid off until you leave your home or die. As a result, there's no danger of foreclosure. You can learn more about reverse mortgages and finding a lender at www.ReverseMortgage.org.
Note: Reverse mortgages have so many conditions and costs that lenders are required to send potential borrowers to counseling sessions run by a government or nonprofit organization. For a list of approved counseling agencies in your area, ask lenders or call HUD's housing counselor and referral line at 1-800-569-4287.
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