Is your home the only wealth you have?
As we are all well aware, property prices have gone through the roof and home owners have managed to accumulate wealth as the value of their property increases. For some, their home is the only wealth that they have and the challenge is using this wealth to increase lifestyle, particularly during retirement.
Selling your house will obviously free up this equity, but of course you still need somewhere to live which defeats the purpose. Here are some situations where selling and moving on can provide wealth to meet your lifestyle expenses.
It must be remembered that there are costs associated with buying and selling and some of the intended unlocked equity will be spent on these costs.
Many people look to downsize in their retirement years. This is a great way to unlock some wealth. Many retirees are looking for smaller places now that their kids have left home and looking after a big house becomes difficult. In this case, the downsize is preferable for lifestyle, liquidating cash is a bonus.
Often our jobs necessitate that we live somewhat near the city where house prices are more expensive. It is common to sell up in the Sydney Metropolitan area and move elsewhere. Just about everywhere is cheaper than the Sydney Metro so of course this frees up some money to provide income.
Another option is to sell your house and rent. This releases money, but increases cost, and in many circumstances, it will reduce Centrelink entitlements. In some suburbs, the differential between property prices and rents makes this a viable option.
What if we don’t want to sell our home? There are options now to use this wealth without selling the house. The reverse mortgage or equity release loans have been around for a while, and although initially unattractive, are now a feasible option.
These loans essentially lend you money against the value of your property and allow you to capitalise the interest. This means that there are no repayments on the loan, and the interest payable gets added to the loan. The compounding effect of these interest payments means that, over time, this debt will increase significantly.
These loans usually operate in one of 2 ways; they either pay you a lump sum up front or they pay you an ongoing income. The best option for you will vary depending on the specifics of your situation.
The loan only has to be repaid if you sell your house or you pass away. The value of the loan cannot exceed the value of the home.
Although many are reluctant to use the equity of their home, and see it as the kid’s inheritance, in the event that you need money to meet your lifestyle expenses, this may be necessary.