Getting equity out of home

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roka
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Getting equity out of home

Post by roka » Fri Aug 23, 2019 4:08 pm

I’m pretty sure I know the answer to this question but maybe I’m missing something.

We bought our condo for cash in 2010 at the depths of the housing crisis - a rare bit of good timing. Since then the value has grown to where the equity in the condo represents about 1/3 of our net worth. We’d love to get access to that equity to use for enjoying our retirement more. We have no children or anyone we’d want to leave assets to. Other than selling the condo is there any way to get the equity? I’ve heard a little about reverse mortgages but they seem to be universally scorned except by those selling them. Any advice? Thanks in advance for any answers!

megabad
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Re: Getting equity out of home

Post by megabad » Fri Aug 23, 2019 4:11 pm

roka wrote:
Fri Aug 23, 2019 4:08 pm
I’m pretty sure I know the answer to this question but maybe I’m missing something.

We bought our condo for cash in 2010 at the depths of the housing crisis - a rare bit of good timing. Since then the value has grown to where the equity in the condo represents about 1/3 of our net worth. We’d love to get access to that equity to use for enjoying our retirement more. We have no children or anyone we’d want to leave assets to. Other than selling the condo is there any way to get the equity? I’ve heard a little about reverse mortgages but they seem to be universally scorned except by those selling them. Any advice? Thanks in advance for any answers!
Depends on your situation. The easiest way other than selling (and likely most cost effective way) would be through a conventional mortgage (not a reverse mortgage). This would require showing financial wherewithall to a lender, but nearly anyone with good credit can qualify for at least some lenders assuming you have either assets or income.
Last edited by megabad on Fri Aug 23, 2019 4:26 pm, edited 1 time in total.

alex_686
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Re: Getting equity out of home

Post by alex_686 » Fri Aug 23, 2019 4:20 pm

2 options

The first is using a HELOC.

The second is using a reverse mortgage. 2 points here.

First l, they tend to be complex. So take your time in understanding them. Each product is different, so comparing is hard. Weird things could happen if you need to move to a care facility. etc.

Second, it is not so much that reverse mortgages are despised, but the sales people. A good number of them are working off of commission trying to sell complex products to vulnerable elderly people. Plus, often the heirs are very interested in extracting the equity for themselves.

delamer
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Re: Getting equity out of home

Post by delamer » Fri Aug 23, 2019 4:28 pm

With the caveat that I have no direct experience with them, it is my understanding that reverse mortgages are much less problematic than they used to be.

Here is some information: https://www.kiplinger.com/article/real- ... eover.html

Trader Joe
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Re: Getting equity out of home

Post by Trader Joe » Fri Aug 23, 2019 4:31 pm

roka wrote:
Fri Aug 23, 2019 4:08 pm
I’m pretty sure I know the answer to this question but maybe I’m missing something.

We bought our condo for cash in 2010 at the depths of the housing crisis - a rare bit of good timing. Since then the value has grown to where the equity in the condo represents about 1/3 of our net worth. We’d love to get access to that equity to use for enjoying our retirement more. We have no children or anyone we’d want to leave assets to. Other than selling the condo is there any way to get the equity? I’ve heard a little about reverse mortgages but they seem to be universally scorned except by those selling them. Any advice? Thanks in advance for any answers!
I would sell asap. I would not have 33.3% of my net worth tied up in a condo.

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9-5 Suited
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Re: Getting equity out of home

Post by 9-5 Suited » Fri Aug 23, 2019 4:33 pm

HELOCs and reverse mortgages, as noted above, are technically the non-selling options, but they aren’t cheap. I see a bunch of HELOCs hovering around 5-6% interest. That kinda sucks as a casual method of extracting your equity unless you truly needed to do it. Reverse mortgages are also a much worse value than selling the property. Are you super tied to it emotionally? I think your net worth will thank you for capturing your equity through a sale and subsequent downsize.

delamer
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Re: Getting equity out of home

Post by delamer » Fri Aug 23, 2019 6:15 pm

Trader Joe wrote:
Fri Aug 23, 2019 4:31 pm
roka wrote:
Fri Aug 23, 2019 4:08 pm
I’m pretty sure I know the answer to this question but maybe I’m missing something.

We bought our condo for cash in 2010 at the depths of the housing crisis - a rare bit of good timing. Since then the value has grown to where the equity in the condo represents about 1/3 of our net worth. We’d love to get access to that equity to use for enjoying our retirement more. We have no children or anyone we’d want to leave assets to. Other than selling the condo is there any way to get the equity? I’ve heard a little about reverse mortgages but they seem to be universally scorned except by those selling them. Any advice? Thanks in advance for any answers!
I would sell asap. I would not have 33.3% of my net worth tied up in a condo.
There is a difference between buying a home that takes 1/3 of your net worth versus having your home increase in value to that point.

Right now, our home makes up about 21% of our assets. If home prices in our area hadn’t increased, it would only be 10%. (I used assets because it is difficult to compare home equity over time due to paying down our mortgage.)

fyre4ce
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Re: Getting equity out of home

Post by fyre4ce » Fri Aug 23, 2019 7:08 pm

Trader Joe wrote:
Fri Aug 23, 2019 4:31 pm
roka wrote:
Fri Aug 23, 2019 4:08 pm
I’m pretty sure I know the answer to this question but maybe I’m missing something.

We bought our condo for cash in 2010 at the depths of the housing crisis - a rare bit of good timing. Since then the value has grown to where the equity in the condo represents about 1/3 of our net worth. We’d love to get access to that equity to use for enjoying our retirement more. We have no children or anyone we’d want to leave assets to. Other than selling the condo is there any way to get the equity? I’ve heard a little about reverse mortgages but they seem to be universally scorned except by those selling them. Any advice? Thanks in advance for any answers!
I would sell asap. I would not have 33.3% of my net worth tied up in a condo.
I disagree with this advice. Your decision of where to live should be primarily based on lifestyle considerations (do you like the condo, location, etc.), unless there is some particular financial problem like the mortgage payment being too big. While having 1/3 of your net worth in a condo does seem high, you should have homeowner's insurance which protects against a catastrophic loss. If the property value goes down, that's only a problem for you if you sell (and as you say, you don't care about your estate). About the only risk is that the area becomes so desolate that you don't want to live there anymore and you're forced to sell at rock bottom prices. I'm not sure selling and renting preemptively is a good solution to this risk.

Reverse mortgages have always seemed scammy to me; a HELOC would be a much more straightforward way to tap your equity. What's concerning to me though is WHY you want/need to tap your equity in the first place. Your equity is not doing nothing; it's providing you "rent equivalent" monthly payments. Lots of homeowners got into trouble in 2007-9 by treating their homes like an ATM and withdrawing equity as prices ratcheted up. When the housing market turned down, bam, they were under water. You should think of a HELOC more like a temporary solution rather than a long-term plan. You have to pay interest on whatever equity you borrow, so if your monthly spending requires withdrawing equity then your finances will eventually collapse. I get the idea of wanting to die having spent and enjoyed every last cent, but if you miscalculate then you end up old and broke. Without knowing more about your situation, I would say you should leave your condo equity alone and live off ~4% of your liquid investments. If you can provide more details I might be able to give better advice.

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Ben Mathew
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Re: Getting equity out of home

Post by Ben Mathew » Fri Aug 23, 2019 7:39 pm

Given the relatively high interest rates on HELOCs and reverse mortgages, it would be best for you to consume the bonds in your portfolio before dipping into home equity at high interest. Consider the home equity as similar to owning bonds in a tax advantaged account. They don't pay interest directly, but the do pay interest indirectly by lowering the interest you would otherwise have had to pay.

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Watty
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Re: Getting equity out of home

Post by Watty » Fri Aug 23, 2019 7:40 pm

The rules for reverse mortgages were revised about ten years ago so they not as bad now so when you are reading about them be sure to figure out if you are looking at current information or not.

That does not mean that they are all that great now so you would need to be very cautious since tapping your home equity like that could mean that you would be living above your means and could be in trouble later in life.
roka wrote:
Fri Aug 23, 2019 4:08 pm
....but maybe I’m missing something.
One big question is how old you are. Taking out a reverse mortage when you are 80 and it is a last resort may be a lot more reasonable than if you are 62.

Topic Author
roka
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Re: Getting equity out of home

Post by roka » Fri Aug 23, 2019 10:04 pm

Thanks everyone for the replies! I’m going to check out reverse mortgages but the most probable course of action is either staying in the condo or selling it and find cheaper housing.

rj49
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Re: Getting equity out of home

Post by rj49 » Sat Aug 24, 2019 1:42 am

Sell the condo, rent somewhere, try new cities, travel, be free. It would be less difficult going from a condo to a rental, especially if you're no longer responsible for dues and taxes and have the freedom to move if you get bored or don't like it. It seems a bank would be less interested in a reverse mortgage on a condo than on a house anyway, and since you're not tied to the area by family, a reverse mortgage would tie you to the same place for the rest of your life. Having a pile of cash frees you for all sorts of options for living and travel, such as snowbirding--when I visit Puerto Vallarta in the winter on cruises, it seems like a Canadian province, full of people renting during the winter to escape cold and snow.

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tennisplyr
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Re: Getting equity out of home

Post by tennisplyr » Sat Aug 24, 2019 6:10 am

I've had HELOCs in the past and they've worked out well...home roof, bought car, wedding expenses. Currently am considering another now as I have no mortgage, there's something comforting about not have to touch my portfolio.
Those who move forward with a happy spirit will find that things always work out.

runner540
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Re: Getting equity out of home

Post by runner540 » Sat Aug 24, 2019 7:52 am

Did you plan your retirement on your investable assets, or the whole networth including house value? I would not take on debt (HELOC, reverse mortgage) to upgrade lifestyle. I would sell/downsize to access the equity.

alex_686
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Re: Getting equity out of home

Post by alex_686 » Sat Aug 24, 2019 7:59 am

runner540 wrote:
Sat Aug 24, 2019 7:52 am
Did you plan your retirement on your investable assets, or the whole networth including house value? I would not take on debt (HELOC, reverse mortgage) to upgrade lifestyle. I would sell/downsize to access the equity.
Why not?

They have no heirs or other legacy plans. Their goal is to maximize consumption (and hopefully happiness) until death. Excuse me for the morbid wording, but if this is the home that they plan to die in and a reverse equity loan may be the best option. A reverse equity loan glues together a future sale of their house with a immediate annuity. This should allow them to extract every penny of equity out of their condo during their lifetime.

I know that there is a lot of emotion surrounding one's home, but a home is just real estate - an asset.

Why sell and downgrade? They are going to lose 5% to 10% in transaction costs. Yes, they then have a large chunk of free cash. But they would have a even bigger chunk of their assets locked away in a new house. If they want to extract that equity they would need to sell that place and move to a smaller one.

runner540
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Re: Getting equity out of home

Post by runner540 » Sat Aug 24, 2019 8:04 am

alex_686 wrote:
Sat Aug 24, 2019 7:59 am
runner540 wrote:
Sat Aug 24, 2019 7:52 am
Did you plan your retirement on your investable assets, or the whole networth including house value? I would not take on debt (HELOC, reverse mortgage) to upgrade lifestyle. I would sell/downsize to access the equity.
Why not?

They have no heirs or other legacy plans. Their goal is to maximize consumption (and hopefully happiness) until death. Excuse me for the morbid wording, but if this is the home that they plan to die in and a reverse equity loan may be the best option. A reverse equity loan glues together a future sale of their house with a immediate annuity. This should allow them to extract every penny of equity out of their condo during their lifetime.

I know that there is a lot of emotion surrounding one's home, but a home is just real estate - an asset.

Why sell and downgrade? They are going to lose 5% to 10% in transaction costs. Yes, they then have a large chunk of free cash. But they would have a even bigger chunk of their assets locked away in a new house. If they want to extract that equity they would need to sell that place and move to a smaller one.
What is the plan for long term care if needed?

alex_686
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Re: Getting equity out of home

Post by alex_686 » Sat Aug 24, 2019 8:11 am

runner540 wrote:
Sat Aug 24, 2019 8:04 am
What is the plan for long term care if needed?
I think I allude to this in my first post. My reading is that the OP has sufficient assets for retirement and are looking to upgrade. Also, some reverse mortgages have provisions for long term care. I would also modestly advocate spending more money in the earlier part of retirement before they become too frail or dead.

On the flip side, how much help does owning a condo free help for long term care? It is a lumpy asset and the liability matching aspect is modest.

So no, a reverse mortgage is not a slam dunk.

To extend a bit, the OP has to calibrate their risk. There is a risk that they won't have enough money until they die. They also face the risk that they don't spend enough and die with a huge pile of cash. Remember, the goal is to die with the least cash possible, having spent the rest. Obviously there is a balancing act her. If you are 100% certain that you will meet the first goal than you are 100% certain that you will miss the second.

StealthRabbit
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Re: Getting equity out of home

Post by StealthRabbit » Sun Aug 25, 2019 12:44 am

How long do you plan on staying in this area?
Do you have a preferred location / type of home (other than this condo or equivalent?) If you COULD sell...
What would it cost to rent the same place ? (more than 1%/ month of capital cost? i.e. $300k condo rent for $3000 / month (hopefully less))

<Most reasonable way to get equity out of personal residence is a 'Cash-out' refinance>
1) Determine your desired cash flows / rent or payment amount..
2) Find a lender (often a CU) to refi and write you a check for additional equity.

Margin and HELOC rates are currently much higher than mortgage rates.

Reverse Mortgage is seldom a plus for homeowner. (depends on terms and age and amount desired).

RobLyons
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Re: Getting equity out of home

Post by RobLyons » Sun Aug 25, 2019 5:16 am

How about a cash out refi or a home equity loan?
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