Thank you to writer Rivan Stinson of Kiplinger Personal Finance for checking in with Mari to talk about how your home can work harder for you in retirement!
In most communities, the real estate market has been on fire. You’ve probably been watching your home equity climb to new highs.
So how can you tap into your home’s value to put more retirement income in your pocket?
Here’s some suggestions from Mari’s interview with Kiplinger.
Refinancing is still a great option for homeowners paying above-market rates on their mortgage. Recently, rates have hovered around 3% for a 30-year fixed mortgage.
“If you’ve got a 4% mortgage or higher and you can go down to close to 3% or less, I can tell you without even running the numbers that you are going to save money,” Mari told Kiplinger. “You’re cutting the mortgage payments and saving potentially thousands on interest down the road.”
Of course, if you’re getting close to retirement, you probably don’t want a new 30-year term mortgage, and in fact, you can save even more on interest if you shorten the life of your loan, Mari said.
She advises many clients to look into refinancing to a new 15-year or other shorter-term mortgage. Your advisor can help you determine if refinancing is right for you, and how long it might take you to recoup any closing costs. That extra money you save by lowering your interest rate or monthly payments can be added to your portfolio to generate additional monthly income.
Another great option, especially for empty nesters who no longer need all that square footage, is to downsize your home to cut your monthly overhead. You can reduce or eliminate your mortgage on the new home and put the excess cash to work elsewhere. You may be better off with a smaller, less costly and maintenance-free home that lets you add more dollars to an income producing retirement portfolio.
Wade Pfau, professor of retirement income at the American College of Financial Services, echoes this advice, saying home values may not rise faster than inflation in the future. That’s a solid argument for investing excess home equity in a diversified portfolio of stocks and bonds, concludes Pfau, who specializes in retirement income issues.
You can check out all of Mari’s tips for maximizing your home’s value in Kiplinger Personal Finance.