Retirement: Living Choices

A Home Equity Line (Second Mortgage)
A home equity line is actually a type of revolving credit for which your home serves as the collateral. You get approval for a loan amount and can borrow the money, as you need it. Many equity lines are set up so you can just write a cheque from your checking account. If there isn’t enough money available, the bank automatically takes some money from the equity line. Other plans are set up with a credit card that you can use to take out the money. Another option is to transfer funds from the equity line to one of your bank accounts. These loans can be very convenient, maybe even too convenient. You do add risk to the security of your home. You will need to make monthly payments on the loan amount and, if you can’t pay them, foreclosure is a possibility.

The amount of credit for which you can qualify will depend on the value of your home, the amount of equity you have in the home (in other words, how much your home is worth above the existing loans on it), and your ability to repay the loan. Your income, debts, and other financial obligations, as well as your credit history, will be reviewed when you apply for the loan. Most home equity lines are taken for a fixed period of time, frequently ten years. Throughout the period of the loan you can borrow using the equity line, repay what you borrowed, and then borrow again. Some equity lines end after the fixed period and must be repaid in full at the end of that time. Others are set up with an automatic renewal possibility.

Reverse Mortgage
Reverse mortgages may sound too good to be true. Rather than paying down on a mortgage by sending money into a mortgage company, you can end up receiving a monthly payment. I’ll bet that sounds great, but don’t get excited too quickly. Basically, a reverse mortgage is a loan taken out with your home as collateral that you won’t have to pay back during your lifetime. You can get the money in a lump sum, in monthly installments, or you can draw from the funds whenever you choose as you would with an equity line. The loan is repaid with interest when you die, if you sell the home before you die, or if you move to another home. Since you don’t make loan payments while you are alive, the loan amount grows larger each time you draw out some money. The good news is that you or your heirs can never owe more than your home’s value when the loan is repaid. If the bank errs in computing the home value or you live longer than the bank expects when the loan is established, it will take the loss at the time of sale. You do continue to have the responsibilities of home ownership while you live there. You will have to pay property taxes (unless you are in one of the states that exempt retirees), insurance, and for any necessary repairs.

Who offers reverse mortgages? The Home Mortgage Bank has recently introduced this product. These loans don’t have any strings attached that stipulate how the money can be used. The amount you will be able to borrow will depend on your age, your home’s value and location, and the cost of the loan (interest rate and loan origination costs are the key costs to watch). The older you are and the greater your home value, the more funds you will qualify for with a reverse mortgage. You probably should not plan this as your first choice, but it may be a good option if you suffer severe financial difficulties in retirement.

Retirement Living Choices
If you decide you want to move, your next choice will be where you want to live. This might be an easy decision, if you already know the exact location you wish to live in. Or, you may first need to pick the place. It may be too early to decide exactly which type of retirement living arrangement you’ll want. A big variable is how healthy you are when you get there. If you can live completely independent of others, your choices are unlimited. As you lose ability to care for yourself independently, other hard choices will need to be made. Many people hope to stay in their home as long as possible. They can offset their need for assistance by paying for in-home services, such as lawn care, cooking, shopping, personal care, or skilled nursing care. This choice can get expensive as your needs for assistance increase.