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Your home is your shelter, and also an important part of your retirement security. A home that is paid for and fits your needs can be a tremendous asset in retirement.
Even if it is paid for, however, you will continue to spend money on property taxes, homeowners' insurance, maintenance, repairs and utilities.
Find out whether reduced rates for any of these items are available to seniors in your area. For example, seniors who meet income requirements may be eligible for reduced property taxes or assistance with utilities.
The problem with your investment in your home traditionally has been that it is not a liquid asset. That means even if your house is worth a small fortune, you can't get to the money when you need it without selling your home or by taking out a loan you have to repay. That's why, in recent years, reverse mortgages have become a popular way for retirees to access their home equity and, most importantly, remain in their homes.
With a reverse mortgage, the lender will either:
- Give you a lump sum that you can invest, use to purchase life insurance or spend as needed;
- Provide a check for a fixed amount each month for life; or
- Offer a line of credit that you can draw against when you need to.
How much you will be able to get depends on the value of your home, your age and current interest rates. The advantage of a reverse mortgage over a traditional equity line of credit is that you don't have to repay it until you leave your home or die. And the lender can't foreclose on you in the meantime, because you are not required to make payments.
Note: Reverse mortgages have so many conditions and costs that lenders must send potential borrowers to a counseling session run by a government or nonprofit organization. For a list of approved counseling agencies in your area, ask lenders or call HUD's housing counselor and referral line at 1-800-569-4287.
Tip: You will find plenty of information about reverse mortgages, as well as information on finding a lender, at www.ReverseMortgage.org.
Instead of getting a reverse mortgage, you may decide to sell your home and enjoy tax free proceeds from the sale. Generally, if you have lived in your home as your primary residence for the last two years, you can receive up to $250,000 in profits tax free if you are single, and $500,000 in profits you are married.
Tip: Do not add a child (or another other person) to your deed unless you have first talked to a tax adviser. This actually may cost your child substantially more in taxes later on, and you will not be able to reverse it.
Other real estate investments. Real estate investments also can provide a steady stream of income at retirement. For example, say you are now in your 30s and buy a rental property. If you keep it rented and well-maintained, your tenants essentially can pay your mortgage, and you can have it paid off by the time you are in your 60s. At that point, you either can sell it or continue to collect the rent each month!
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