Retirees: what are you doing with all the home equity?

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tennisplyr
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Retirees: what are you doing with all the home equity?

Post by tennisplyr »

I'm assuming that retiree home owners have a fair amount of equity in their homes. That said, I was wondering what, if anything, they are doing (differently) with that equity in times like these.
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Re: Retirees: what are you doing with all the home equity?

Post by livesoft »

No change. I'm still living large in it.
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Re: Retirees: what are you doing with all the home equity?

Post by ochotona »

Sadly, my MIL has stated that much of her wealth is in her house. She's house rich, cash poor. Sadly, if there are no buyers, she's poor all the way around. This is a huge problem.
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Re: Retirees: what are you doing with all the home equity?

Post by adamthesmythe »

If one has adequate retirement funds, there is no reason to "do anything" with it. Indeed, having 100% equity keeps absolutely essential spending low, making it very easy to weather periods when the stock market has a conniption.
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Re: Retirees: what are you doing with all the home equity?

Post by Dave55 »

Nothing.

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Re: Retirees: what are you doing with all the home equity?

Post by chw »

Depending on stage of retirement, an older retiree might use the home equity to contribute to the cost of Independent Living/Assisted Living,
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Re: Retirees: what are you doing with all the home equity?

Post by Raymond »

Nothing.

Although I had a brief flash of genius: Doing a HELOC and putting all the proceeds into UPRO.

Then I woke up.

Not living as large as Livesoft, though :( :P
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Re: Retirees: what are you doing with all the home equity?

Post by HEDGEFUNDIE »

ochotona wrote: Wed Apr 15, 2020 12:06 pm Sadly, my MIL has stated that much of her wealth is in her house. She's house rich, cash poor. Sadly, if there are no buyers, she's poor all the way around. This is a huge problem.
This is exactly the predicament I am avoiding with my interest-only mortgage which I intend to roll over into perpetuity.
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Re: Retirees: what are you doing with all the home equity?

Post by AK62 »

I'm not sure exactly what the OP is asking. Perhaps OP can clarify.

As a personal comment, I am not retired (yet) but my home is paid off. That stated, I would never take my home equity and invest in the market. Why? This is my home. I need it to sleep in, keep me warm and dry at night. I've heard of people taking a HELOC or equity out on their home and investing it in the market. That is an enormous risk. I depend on my home for shelter, so taking the equity and investing it is a big NO! Why would anyone in their right mind do that?
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Re: Retirees: what are you doing with all the home equity?

Post by bgf »

HEDGEFUNDIE wrote: Wed Apr 15, 2020 12:16 pm
ochotona wrote: Wed Apr 15, 2020 12:06 pm Sadly, my MIL has stated that much of her wealth is in her house. She's house rich, cash poor. Sadly, if there are no buyers, she's poor all the way around. This is a huge problem.
This is exactly the predicament I am avoiding with my interest-only mortgage which I intend to roll over into perpetuity.
How long is your interest only term? Do they have any restrictions on rolling it forward?
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Re: Retirees: what are you doing with all the home equity?

Post by cheese_breath »

Up until DW's stoke nothing. Since then I sold the house and added the equity to the balance to pay for her care.
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Re: Retirees: what are you doing with all the home equity?

Post by FIREchief »

I liquidated it 100% 18 months ago and rented. I was glad I did even before this latest "crisis," and am even more glad now. That said, my heirs would likely have come out ahead if I had just stayed put for another 5, 10, 15 years but life is about more than $$$.
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Re: Retirees: what are you doing with all the home equity?

Post by HEDGEFUNDIE »

bgf wrote: Wed Apr 15, 2020 12:34 pm
HEDGEFUNDIE wrote: Wed Apr 15, 2020 12:16 pm
ochotona wrote: Wed Apr 15, 2020 12:06 pm Sadly, my MIL has stated that much of her wealth is in her house. She's house rich, cash poor. Sadly, if there are no buyers, she's poor all the way around. This is a huge problem.
This is exactly the predicament I am avoiding with my interest-only mortgage which I intend to roll over into perpetuity.
How long is your interest only term? Do they have any restrictions on rolling it forward?
5/1 but there are 30 year fixed rate interest only mortgages as well.

“Rolling it forward” just means refinancing with all the caveats that entails
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Re: Retirees: what are you doing with all the home equity?

Post by Doom&Gloom »

Living in it. That is why we bought it.
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Re: Retirees: what are you doing with all the home equity?

Post by quantAndHold »

Living in it, grateful that we don’t have to come up with a mortgage payment every month.

Bigger picture, the equity is like 1/3 of our net worth. It’s our Plan C emergency fund, for events like what happened to cheese_breath (spouse in long term care for a really long time).
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Re: Retirees: what are you doing with all the home equity?

Post by Shallowpockets »

If I were like many businesses I would tap that equity, then do stock buys, and then when things got tough, I would just get the bailout. But I am not essential and thus I will not.
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Re: Retirees: what are you doing with all the home equity?

Post by tennisplyr »

I'm 70, retired 9 years and living in a mortgage free home. Things are going fine, just wanted to see if maybe I'm missing something.
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Re: Retirees: what are you doing with all the home equity?

Post by adamthesmythe »

tennisplyr wrote: Wed Apr 15, 2020 2:37 pm I'm 70, retired 9 years and living in a mortgage free home. Things are going fine, just wanted to see if maybe I'm missing something.
You're missing the monthly mortgage payments.
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Re: Retirees: what are you doing with all the home equity?

Post by rj49 »

I'd think that considering a reverse mortgage might make sense, especially for those who intend to stay forever in their home, don't have heirs, or want safe income to complement social security and make it easier to endure economic/market turmoil. The other reason it might make sense is that that when the houses of boomers and older need to be sold, it's difficult to imagine who will have the means to buy, with smaller, more-indebted generations used to renting. I read an article forecasting future housing declines in areas currently dominated by senior populations, simply because there won't be enough buyers for the huge inventory of houses eventually coming on the market over the coming decades. Bond prices and thus mortgages only have room to go up in the future, which will also impact housing prices and affordability. It's difficult for most to contemplate significant housing price declines or a housing glut, but then up until 2 months ago a lot of people couldn't imagine a sudden market crash either and the possibility of a serious recession or depression.

Personally, I bought my house with cash and have a stable government pension and am single with really nothing to spend significant money on, particularly with travel no longer an attractive option. Still, I believe in the "Die Broke" philosophy of Stephen Pollan, so I hate the idea of leaving untouched wealth behind, particularly if such a reverse mortgage could act as insurance for medical surprises/home care/LTC. I realize reverse mortgages are a huge hassle and risky and not popular on here (like annuities), but I'll eventually look into it.
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Re: Retirees: what are you doing with all the home equity?

Post by HomeStretch »

In these uncertain times, I am enjoying the lower monthly living expenses due to 100% equity/no mortgage.
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Re: Retirees: what are you doing with all the home equity?

Post by Watty »

Living without any rent or mortage payment, that is called "imputed rent" and you can Google that.

One huge advantage of that is that I do not need any income to pay that so I do not have to pay taxes on that income.

It helps that I live in a moderate to low cost of living area but with a paid off house we could live a modest but comfortable lifestyle just with Social Security if we needed to.

If we ever need long term care then the home equity can be used for a safety net for that. If only one of use is surviving when that is needed then the house will be sold when they move into long term care.

I do have a small Home Equity Line of Credit that I use to smooth out my income to keep it low enough to get an affordable care act subsidy for health insurance but when I get on Medicare I will pay that off.
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Re: Retirees: what are you doing with all the home equity?

Post by MathIsMyWayr »

AK62 wrote: Wed Apr 15, 2020 12:25 pm I'm not sure exactly what the OP is asking. Perhaps OP can clarify.

As a personal comment, I am not retired (yet) but my home is paid off. That stated, I would never take my home equity and invest in the market. Why? This is my home. I need it to sleep in, keep me warm and dry at night. I've heard of people taking a HELOC or equity out on their home and investing it in the market. That is an enormous risk. I depend on my home for shelter, so taking the equity and investing it is a big NO! Why would anyone in their right mind do that?
If you live in it, it only provides a shelter. The equity of the house does not do anything for you regardless it is $200k or $5MM. House rich, but cash poor. Great temptation.
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Re: Retirees: what are you doing with all the home equity?

Post by rixer »

I'm 71 and retired with a mortgage free home. That's the way I had planned it and I'm enjoying the security of knowing it's paid for. So, I don't plan to change anything.
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Re: Retirees: what are you doing with all the home equity?

Post by steve roy »

Wellll. We cashed out of our long-time residence two years ago. The newer house has SOME EQUITY, but we're sitting tight.
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Re: Retirees: what are you doing with all the home equity?

Post by Broken Man 1999 »

I see our home equity (no mortgage) as a possible source for LTC expenses paid via a reverse mortgage.

No reason at this point to tap for any purpose.

Our home is brick, so not much maintenance. Taxes are capped, very low, about $1700/year.

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Re: Retirees: what are you doing with all the home equity?

Post by 22twain »

Our house is paid off, but it makes up less than 5% of our net worth, thanks to our being in a LCOL area. So we’re not doing anything with it except living in it.
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Re: Retirees: what are you doing with all the home equity?

Post by vipertom1970 »

nothing, house already paid off 20 years ago and I rather eat beans and rice then tapping into home equity.
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Re: Retirees: what are you doing with all the home equity?

Post by adamthesmythe »

MathIsMyWayr wrote: Wed Apr 15, 2020 2:57 pm
AK62 wrote: Wed Apr 15, 2020 12:25 pm I'm not sure exactly what the OP is asking. Perhaps OP can clarify.

As a personal comment, I am not retired (yet) but my home is paid off. That stated, I would never take my home equity and invest in the market. Why? This is my home. I need it to sleep in, keep me warm and dry at night. I've heard of people taking a HELOC or equity out on their home and investing it in the market. That is an enormous risk. I depend on my home for shelter, so taking the equity and investing it is a big NO! Why would anyone in their right mind do that?
If you live in it, it only provides a shelter. The equity of the house does not do anything for you regardless it is $200k or $5MM. House rich, but cash poor. Great temptation.
Missing the point. "Tapping the equity" can be done in two ways. One is to borrow money to invest. This is a bet that the investment will yield more than the cost of borrowing. If you do this it becomes a question of asset allocation. Investing to get ahead of borrowing costs means, almost inevitably, something more risky than conservative bonds. We have seen many comments here about how asset allocation should be chosen to sleep well at night, independent of market gyrations. Also discussions about moving to more conservative allocations if you have "won the game." An appropriately chosen paid-off house is part of a conservative asset allocation.

The other way to tap equity is to SELL and then RENT. Even apart from the potential for rent increases, one needs to look at what you get as a rental from the income generated by your deployed equity. I was compelled by circumstances to rent for a short period, and I can tell you- at least in my area- it was not great. A substantial downgrade, and not even an attractive cost.
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4 options

Post by hudson »

I see 4 options...do nothing, sell and rent, heloc, or reverse mortgage.
I don't have a mortgage and don't want any debt, so that leaves out a heloc or a reverse mortgage.
I did look at a reverse mortgage to see what it was about. From memory, one only got around half of the value of the house....a terrible deal. UPDATE: I ran lending tree's calculator for age 67, $400K house...payout...190K.
Sell and rent....UGH!
Only "do nothing" appeals to me.
I could make my children joint owners, but the will takes care of that.
Last edited by hudson on Thu Apr 16, 2020 5:59 am, edited 2 times in total.
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Re: Retirees: what are you doing with all the home equity?

Post by RadAudit »

Well, I'm just letting it sit there. Hopefully, the market will be in such a shape that when they put me in the old folks' home, I can sell the house and use the proceeds for the entry fee.

But thanks for discussing several other options.
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Re: Retirees: what are you doing with all the home equity?

Post by abuss368 »

We still have a mortgage. So reducing debt and building equity. When it is finally paid off, I do not plan to do anything with the home equity.

I realize there are alternative strategies based upon individual circumstances and needs.
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Re: Retirees: what are you doing with all the home equity?

Post by pascalwager »

I own my home in an affordable housing area in the foothills. It's modest, probably has low curb appeal, but fully functional and habitable--far better than being homeless with money in the bank. So, for me, home equity is just a financial concept of little personal interest. Hopefully it can remain so.
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Re: Retirees: what are you doing with all the home equity?

Post by Sandtrap »

Home equity = less debt.
HELOC = debt
Mortgage = debt
Avoid debt💰

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Re: Retirees: what are you doing with all the home equity?

Post by Enzo IX »

House is paid for, it's part of my Plan "B", so I don't end up under the bridge. I will not participate in the I'm mortgaging the house if the market really tanks discussions.

It is allowing me to increase my equity allocation for a person of my age, and hopefully receive the equity risk premium.
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Re: Retirees: what are you doing with all the home equity?

Post by yangtui »

HEDGEFUNDIE wrote: Wed Apr 15, 2020 1:14 pm
This is exactly the predicament I am avoiding with my interest-only mortgage which I intend to roll over into perpetuity.
I need to model this out in Excel but on the surface interest-only mortgages seem like a good deal. For the average person they are probably bad but if you approach it the right way they seem to be a very powerful tool. Any general pointers or references you like regarding interest only mortgages?
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Re: Retirees: what are you doing with all the home equity?

Post by HEDGEFUNDIE »

yangtui wrote: Wed Apr 15, 2020 6:43 pm
HEDGEFUNDIE wrote: Wed Apr 15, 2020 1:14 pm
This is exactly the predicament I am avoiding with my interest-only mortgage which I intend to roll over into perpetuity.
I need to model this out in Excel but on the surface interest-only mortgages seem like a good deal. For the average person they are probably bad but if you approach it the right way they seem to be a very powerful tool. Any general pointers or references you like regarding interest only mortgages?
Conceptually:

The value of an interest only mortgage =
the value of liquidity of the principal diverted to investment portfolio +
portfolio market return on that principal -
interest rate of the mortgage

"Value of liquidity" incorporates the volatility of the investment portfolio, the higher the volatility, the less likely the money will be there when you need it.
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Re: Retirees: what are you doing with all the home equity?

Post by yangtui »

HEDGEFUNDIE wrote: Wed Apr 15, 2020 6:57 pm
yangtui wrote: Wed Apr 15, 2020 6:43 pm
HEDGEFUNDIE wrote: Wed Apr 15, 2020 1:14 pm
This is exactly the predicament I am avoiding with my interest-only mortgage which I intend to roll over into perpetuity.
I need to model this out in Excel but on the surface interest-only mortgages seem like a good deal. For the average person they are probably bad but if you approach it the right way they seem to be a very powerful tool. Any general pointers or references you like regarding interest only mortgages?
Conceptually:

The value of an interest only mortgage =
the value of liquidity of the principal diverted to investment portfolio +
portfolio market return on that principal -
interest rate of the mortgage

"Value of liquidity" incorporates the volatility of the investment portfolio, the higher the volatility, the less likely the money will be there when you need it.

Thank you
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Re: Retirees: what are you doing with all the home equity?

Post by bertilak »

tennisplyr wrote: Wed Apr 15, 2020 12:02 pm I'm assuming that retiree home owners have a fair amount of equity in their homes. That said, I was wondering what, if anything, they are doing (differently) with that equity in times like these.
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Re: Retirees: what are you doing with all the home equity?

Post by SGM »

We enjoy living in our home. We paid off our mortgage a long time ago. Being debt free allowed us to invest more of my earnings early on.
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Re: Retirees: what are you doing with all the home equity?

Post by slowbutsteady »

HEDGEFUNDIE wrote: Wed Apr 15, 2020 6:57 pm
yangtui wrote: Wed Apr 15, 2020 6:43 pm
HEDGEFUNDIE wrote: Wed Apr 15, 2020 1:14 pm
This is exactly the predicament I am avoiding with my interest-only mortgage which I intend to roll over into perpetuity.
I need to model this out in Excel but on the surface interest-only mortgages seem like a good deal. For the average person they are probably bad but if you approach it the right way they seem to be a very powerful tool. Any general pointers or references you like regarding interest only mortgages?
Conceptually:

The value of an interest only mortgage =
the value of liquidity of the principal diverted to investment portfolio +
portfolio market return on that principal -
interest rate of the mortgage

"Value of liquidity" incorporates the volatility of the investment portfolio, the higher the volatility, the less likely the money will be there when you need it.

To each his/her own, but isn't the interest + maintenance cost more expensive than renting? Of course that's assuming comparable home exists.
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Re: Retirees: what are you doing with all the home equity?

Post by CurlyDave »

tennisplyr wrote: Wed Apr 15, 2020 2:37 pm I'm 70, retired 9 years and living in a mortgage free home. Things are going fine, just wanted to see if maybe I'm missing something.
I retired in 2007.

I have a non-inflation adjusted pension. I used my home equity (and rental property equity) to inflation-adjust the pension. DW's pension is partly inflation-adjusted, but I use hers the same way.

How did I do that? Instead of paying off our mortgages, I have the pensions pay into a separate account and the 30 year fixed-rate mortgages (we also have rentals) are auto paid from that account. I never even have to think about it, and the amounts will always balance out -- no inflation risk. A small EF keeps accumulating in that account.

The money stayed in our portfolio, which I kept invested, mostly in QQQ (which has blown the doors off the S&P 500 over that time period) at 100/0 up until recently. Since we aren't getting any younger, I changed to an AA of 80/20 a few months back.

Was this risky? Probably. Did it work out? Absolutely, positively yes.
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Re: Retirees: what are you doing with all the home equity?

Post by SevenBridgesRoad »

tennisplyr wrote: Wed Apr 15, 2020 2:37 pm I'm 70, retired 9 years and living in a mortgage free home. Things are going fine, just wanted to see if maybe I'm missing something.
Add wife and I to the boring responses side of the ledger. 63 yo, retired about 18 months. Own a nice house in a great location, no mortgage. We are doing nothing with all the home equity, except keeping our options open. We enjoy life being as antifragile as possible.
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Re: Retirees: what are you doing with all the home equity?

Post by HEDGEFUNDIE »

slowbutsteady wrote: Thu Apr 16, 2020 6:04 am
HEDGEFUNDIE wrote: Wed Apr 15, 2020 6:57 pm
yangtui wrote: Wed Apr 15, 2020 6:43 pm
HEDGEFUNDIE wrote: Wed Apr 15, 2020 1:14 pm
This is exactly the predicament I am avoiding with my interest-only mortgage which I intend to roll over into perpetuity.
I need to model this out in Excel but on the surface interest-only mortgages seem like a good deal. For the average person they are probably bad but if you approach it the right way they seem to be a very powerful tool. Any general pointers or references you like regarding interest only mortgages?
Conceptually:

The value of an interest only mortgage =
the value of liquidity of the principal diverted to investment portfolio +
portfolio market return on that principal -
interest rate of the mortgage

"Value of liquidity" incorporates the volatility of the investment portfolio, the higher the volatility, the less likely the money will be there when you need it.

To each his/her own, but isn't the interest + maintenance cost more expensive than renting? Of course that's assuming comparable home exists.
In my area it’s cheaper than renting. Especially with interest rates at under 3%
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Re: Retirees: what are you doing with all the home equity?

Post by carolinaman »

Our home was paid off many years ago and represents about 15% of our net worth. Our living expenses are covered by SS and pensions. We have no need to do anything with our equity. We are ages 75 and 77 and have lived here 46 years. We intend to live in our home as long as possible unless something happens that makes that impossible. Our home will go to our two children
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Re: Retirees: what are you doing with all the home equity?

Post by delamer »

MathIsMyWayr wrote: Wed Apr 15, 2020 2:57 pm
AK62 wrote: Wed Apr 15, 2020 12:25 pm I'm not sure exactly what the OP is asking. Perhaps OP can clarify.

As a personal comment, I am not retired (yet) but my home is paid off. That stated, I would never take my home equity and invest in the market. Why? This is my home. I need it to sleep in, keep me warm and dry at night. I've heard of people taking a HELOC or equity out on their home and investing it in the market. That is an enormous risk. I depend on my home for shelter, so taking the equity and investing it is a big NO! Why would anyone in their right mind do that?
If you live in it, it only provides a shelter. The equity of the house does not do anything for you regardless it is $200k or $5MM. House rich, but cash poor. Great temptation.
Why would you assume that having house equity makes you cash poor?

Our home equity is less than 25% of our net worth. But even if it was 50% instead, that wouldn’t make us cash poor.

To use your example, if a retired couple has $5,000,000 in home equity and $5,000,000 in a 401(k), are they cash poor?
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Re: Retirees: what are you doing with all the home equity?

Post by Rus In Urbe »

adamthesmythe

If one has adequate retirement funds, there is no reason to "do anything" with it. Indeed, having 100% equity keeps absolutely essential spending low, making it very easy to weather periods when the stock market has a conniption.
+1

Our long-ago paid-off home constitutes 7% of our N.W. And it is plenty luxurious and large for us. The smaller percentage, the better, since real estate that is not rented comes with myriad associated costs and is not an investment. IMHO.
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Re: Retirees: what are you doing with all the home equity?

Post by nguy44 »

No changes. Our home is for our living, it is not for investment. While I did consider not paying off the small balance early and investing the money during these down times, for now I am just being lazy and continuing as is. We have plenty of cash, and do not need to draw on its equity.
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Re: Retirees: what are you doing with all the home equity?

Post by vitaflo »

adamthesmythe wrote: Wed Apr 15, 2020 2:40 pm
tennisplyr wrote: Wed Apr 15, 2020 2:37 pm I'm 70, retired 9 years and living in a mortgage free home. Things are going fine, just wanted to see if maybe I'm missing something.
You're missing the monthly mortgage payments.
I wouldn't say I'm missing it... :sharebeer
JackoC
Posts: 1735
Joined: Sun Aug 12, 2018 11:14 am

Re: Retirees: what are you doing with all the home equity?

Post by JackoC »

rj49 wrote: Wed Apr 15, 2020 2:44 pm I'd think that considering a reverse mortgage might make sense, especially for those who intend to stay forever in their home, don't have heirs, or want safe income to complement social security and make it easier to endure economic/market turmoil. The other reason it might make sense is that that when the houses of boomers and older need to be sold, it's difficult to imagine who will have the means to buy, with smaller, more-indebted generations used to renting.
Without making any projections about specific future house prices, a reverse mortgage line of credit can essentially lock in the collateral value of your home now, ie bank is committed to lend you the amount commensurate with current (actually gradually stepped up from now) home value and Loan-to-Value ratio on offer now, even if future market values and/or LTV's are much lower. With such a line of credit you are also not taking on debt per se now, just locking a bank into giving it to you in the future at what might by then be much more attractive than market terms. There have been informative threads about it here as well as other resources to look up: of course you have to learn and evaluate many details before considering actually doing it. But that's potentially quite attractive, essentially a put option on housing prices. Besides the details though, maximum amounts limit this strategy to providing significant downside protection to moderate house values. It wouldn't work well for a house in a very high cost area like ours for example.

Otherwise though, just borrowing money at mortgage type rates isn't necessarily attractive. If you need to and its cheapest for you, OK. But often there are statements about how low rates are, as if you can just finance risky asset purchases (like stocks) and make a killing...but that ignores the possibility that future stock returns have moved down in tandem with rates. 'Only 3%' borrowing isn't necessarily cheap compared to the expected return on stocks *from now* (historical returns are nice to talk about but basically irrelevant). It's obviously not low compared to what you could earn on low risk investments now.

So we just sit on our home equity. And if we needed emergency liquidity beyond what we hold in bank accounts and and short term bond funds, we could borrow a small % of the value of our ETF's at Interactive Brokers at ~1.15%, miles below the rate on any home equity borrowing product. And at say 25% margin loan v. ~75% IB max, the stock market could fall drastically without a margin call.
flyingaway
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Joined: Fri Jan 17, 2014 10:19 am

Re: Retirees: what are you doing with all the home equity?

Post by flyingaway »

I have a big house in a very local cost of living area. I plan to keep it for the worst cases, diversifying my assets. It will be our last resort for long term care if needed, otherwise it will be for my children to deal with it.
Though about downsizing after my children left, but the work and cost to prepare the house for sell and to buy a new house is just too much for me at this time. If I really need the home equity (money), I am willing to work for one or two more years.
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