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Best way of Using Home Equity for Retirement?
Old 02-01-2020, 12:38 PM   #1
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Best way of Using Home Equity for Retirement?

Hey guys,
I'm one of these guys who has a home that is worth more than our retirement funds. I had a stroke early in life so I retired on disability in my 40's. My wife is an RN but now at age 56...she wants to retire.
According to most calculators we can retire with our portfolio and be OK but we won't have a lot to travel or make large purchases with (like a motor home or second home). Now....our home is valued at at a pretty high amount and is paid off. Plus...we have an attached apartment on our property that produces at least $1500/month. Because of this, I really don't want to sell our home.
Soooooo.......my question is what is the best way to utilize our homes equity to spend in retirement just in case we burn through our portfolio faster than we though OR we simply want to live a little more extravagant than our budget will allow. I have thought about a reverse mortgage because of no payments until we both leave the home. Why is that a bad move?
Thanks guys!
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Old 02-01-2020, 07:25 PM   #2
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How much equity do you have?
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Old 02-01-2020, 07:28 PM   #3
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Get a low interest mortgage, invest the money you get from the mortgage somewhat conservatively, repay the mortgage with inflated dollars (rendering it close to free), and use the extra money from the investments to pay expenses.
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Old 02-01-2020, 07:43 PM   #4
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How much equity do you have?
About $800,000 plus the apartment can rent for about $1600/month.
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Old 02-01-2020, 07:48 PM   #5
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Get a low interest mortgage, invest the money you get from the mortgage somewhat conservatively, repay the mortgage with inflated dollars (rendering it close to free), and use the extra money from the investments to pay expenses.
Define "mortgage"? AFAIK I only have two options...a HELOC or a Reverse? The reverse is attractive to me because I don't have to make payments.
As far as investing the banks equity....not sure where to invest to make safe money? What type of investment are you thinking of? I don't feel it would be wise for me to invest in anything that could take a downturn with my home equity money.
Thanks
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Old 02-01-2020, 08:52 PM   #6
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GrayHare is talking about a cash out mortgage. If your home is worth $800k and the bank requires 20% down then you would get $640k in cash and sign a $640k note collateralized by your house.
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Old 02-01-2020, 08:58 PM   #7
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GrayHare is talking about a cash out mortgage. If your home is worth $800k and the bank requires 20% down then you would get $640k in cash and sign a $640k note collateralized by your house.
Yes, that's the concept. Since the lender is putting up the money, the lender has the risk. Might not be doable, i.e. no one will make such a loan, unless you have regular, earned income. If, however, you have limited investing experience, this might not be a good approach.
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Old 02-01-2020, 09:06 PM   #8
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Yes, that's the concept. Since the lender is putting up the money, the lender has the risk. Might not be doable, i.e. no one will make such a loan, unless you have regular, earned income. If, however, you have limited investing experience, this might not be a good approach.
Nah...won't do that because I am asking about retirement (maybe read my OP again) and my only income is SSDI and rental income.
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Old 02-01-2020, 09:29 PM   #9
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Well, according to your original post, your wife does have earned income, something important only at the time of the loan. As for "asking about retirement" this strategy works regardless of employment status or age, provided you find a lender, of course.
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Old 02-02-2020, 12:29 AM   #10
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About $800,000 plus the apartment can rent for about $1600/month.
OP - earlier you said it did rent, so are you currently renting it all the time or just an idea ?
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Old 02-02-2020, 12:35 AM   #11
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OP - An issue with reverse mortgages is they have high fees, so are expensive.

From reading between the lines, I would say the idea of buying an RV or a second home would be TERRIBLE....

A very simple fact of life is, a low cost home , leaves a bunch of money available to invest, and reduces the monthly bills by a lot. So you could trade your $800K home for a smaller $300K home and save on the monthly bills plus free up about $450K.
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Old 02-02-2020, 03:34 AM   #12
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.....Soooooo.......my question is what is the best way to utilize our homes equity to spend in retirement just in case we burn through our portfolio faster than we though OR we simply want to live a little more extravagant than our budget will allow. ...
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Nah...won't do that because I am asking about retirement (maybe read my OP again) and my only income is SSDI and rental income.
I guess that you either want it or you don't.
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Old 02-02-2020, 06:45 AM   #13
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Well, according to your original post, your wife does have earned income, something important only at the time of the loan. As for "asking about retirement" this strategy works regardless of employment status or age, provided you find a lender, of course.
I see..are you to saying get a HELOC right before she retires and use the money to invest and spend on things I want. And then invest the equity money with the goal of hopefully making enough money off of the investment to pay most of the mortgage payment. Right?
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Old 02-02-2020, 06:46 AM   #14
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OP - earlier you said it did rent, so are you currently renting it all the time or just an idea ?
It's renting now and will continue to rent for the time I own the home (hopefully the rest of my life). It's good income.
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Old 02-02-2020, 06:54 AM   #15
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OP - An issue with reverse mortgages is they have high fees, so are expensive.

From reading between the lines, I would say the idea of buying an RV or a second home would be TERRIBLE....

A very simple fact of life is, a low cost home , leaves a bunch of money available to invest, and reduces the monthly bills by a lot. So you could trade your $800K home for a smaller $300K home and save on the monthly bills plus free up about $450K.
Yeah...I though about downsizing...and MAYBE it would be a smarter move but I hate to give up the home. It's in The Keys and I love it here.

Now here is another scenario that I believe follows your suggestion....I could simply rent out the main home (the home I live in now) and move to the smaller apartment (about 1000sf). This would give me another $1500/month income because the main home could rent for about $3000/month and the rental income I receive now goes for about half that.

But, I want to stay on topic because I have already figured that my retirement income needs can be met. I am asking about the smartest way to use my equity in my home for me to make large purchases (whether it's a motor home, 2nd home, end of life care, etc...). Talk me out of getting a reverse mortgage where I won't have to make any payments on the equity I use vs other scenarios where I would be stuck with a payment on the equity, which I really don't want because I will be on a fixed income. AKAIK...the fees are not much higher than HELOC loans and if they are...they are negotiable.
Thanks.
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Old 02-02-2020, 07:01 AM   #16
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Old 02-02-2020, 07:18 AM   #17
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If I recall correctly from the OPs's earlier thread, this is the home with the illegal rental unit on which he has not been declaring rental income for some number of years. Selling the home in order to downsize may bring these issues to light.
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Old 02-02-2020, 11:25 AM   #18
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Research reverse mortgages. One of you must be 62. They are a bad idea. People are suggesting you remortgage your home with a new mortgage and pull out some of your equity.
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Old 02-02-2020, 11:32 AM   #19
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If I recall correctly from the OPs's earlier thread, this is the home with the illegal rental unit on which he has not been declaring rental income for some number of years. Selling the home in order to downsize may bring these issues to light.
Oh snap! Yeah, that could cause issues for the OP.
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Old 02-02-2020, 11:32 AM   #20
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I would sell the whole dang thing and buy something to give you $500k in investable assets. Hope that your wife can contribute in salary for awhile longer. I assume she'll have some SS?
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