Your home is often your most valuable asset and your mortgage is certainly your largest monthly payment. With so much money tied up in one asset, it is important to have a plan in place if home equity is part of your financial future. Thanks to generous federal income tax rules, your home can be a tax-advantaged financing instrument to pay for higher education, provide emergency cash and make strategic investments.
However, home equity financing is also fraught with risks for the undisciplined homeowner. Too many tap into home equity to pay for vacations, new cars, and other current consumption expenses producing no long-term wealth appreciation. These homeowners may be seriously eroding their ability to finance retirement.
Home equity has obvious retirement planning implications. Downsizing to a smaller dwelling can produce a nice source of retirement capital plus the gain on the sale of your residence is often untaxed. If home equity is part of your retirement capital, plan to have your mortgage debt paid down significantly by your target retirement date.
If you are emotionally attached to your home, a reverse mortgage could create a steady stream of retirement income over your lifetime. Once the homeowner(s) reaches age 62, you can borrow a certain percentage of appraised equity from your home. Loan interest accrues, but there is no loan repayment until after the death of the homeowner(s).
Finally, resist the urge to take a fifteen-year first mortgage - the higher payments can easily create a cash flow pinch later on. A thirty-year mortgage can be re-paid on a fifteen year pace and provide much more financial flexibility as your life changes in the future.
We have the expertise to help you construct the optimal home mortgage debt plan to complement and advance your long-term financial goals.
