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Is My Home Equity Part of a Retirement Portfolio?

When saving money for retirement, you must make sure that you accurately assess your savings needs so that you can retire comfortably on your timeline. However, even if you make sound savings goals, you may still fall short of them. If you need additional money for retirement, you may want to consider using your home as part of your retirement portfolio.

  1. Process

    • Your home equity can be a part of your retirement portfolio through a reverse mortgage. The reverse mortgage is a mortgage that is open until your death. The bank allows you to tap into your home's equity. You then receive payments from the bank or are allowed to withdraw money as though the equity were a savings.

    Significance

    • The significance of a reverse mortgage is that the bank secures an equitable interest in your home. You are taking out a loan against the value of your home. Unlike most loans, however, this loan doesn't need to be repaid immediately and you may stay in your home for as long as you live.

    Benefit

    • The benefit of a reverse mortgage is that you receive tax-free income. The mortgage proceeds are considered loaned funds, and not income. This may allow you to supplement your other retirement savings to make up for any shortfalls you are experiencing.

    Disadvantage

    • The disadvantage to a reverse mortgage is that the mortgage needs to be paid off when the last spouse moves out of the home or dies. You are taking out a loan against your home, so there are also closing costs and other fees that are generally associated with taking out a mortgage. If you want to leave the house to your family after you die, then you will need to buy life insurance to pay off the mortgage or be prepared to take on some type of payment arrangement to pay back the bank.

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