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October 18, 2009

House wealth tips

So what are people who have the majority of their wealth tied up in their home to do? There are a number of options for using housing value to provide for retirement needs, according to Anna Rappaport, a former president of the Society of Actuaries. But it should be noted that there is not a consensus on the best course of action.

“Further research needs to be done to define the options, identify the trade-offs, provide a framework for analysis and help individuals make decisions,” Rappaport wrote in a recent report. And, as with most things financial, she said the ultimate best course of action will also depend on “individual preferences and circumstances.”

That said, here are the options you have to unlock the equity in your home:

• Pay off the mortgage, if possible, to reduce overall expenses

• Sell and downsize to a smaller home, freeing up funds for investment or annuity purchase

• Sell your home, invest the proceeds and then rent

• Secure a home equity loan or secondary mortgage on the house

• Get a reverse mortgage

• Rent out extra rooms

• Rent out your primary residence and live elsewhere at a lower cost

• Keep the house mortgage-free, and let its value serve as an emergency fund if needed

Not all those options might be viable for your retirement plan. And some of the options aren’t quite ready for prime time just yet. For instance, “reverse mortgages may offer significant income potential to some households, but at relatively high cost and risk,” Rappaport wrote. “Furthermore, they may help older households remain in their homes, but they limit future housing choices and are presented as a last resort option by some financial planners.”

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