Monthly Archives: September 2019

Sep, 11, 2019 Topic: Debt, Retirement

Debt & Retirement

Everyone is familiar with debt. It is the cost associated with taking the next step to reach goals like getting an education, buying a car, or purchasing a house. Debt sticks with people even after those goals have been reached. It’s not uncommon to have debt when you enter retirement. The question is, what do you do about it? Here’s an overview of what to know about having debt in retirement and how to address it.

The Retiree Debt Trend

Debt often feels isolating. But in reality, debt among retirees is not uncommon. Between 2003 and 2017, the amount of debt has gone up 87 percent among those ages 55 to 80. Credit card debt, mortgage payments, student loans, and car payments help contribute to this. Other financial factors like the availability of credit, lower interest rates, and wealth generated by the housing and equity markets contribute too.

The average debt among people 55 to 64 is $108,000. Those ages 65 to 74 have $66,000 in debt. Because of these high average debts, people in these age groups opt to delay retirement and keep working.

The Unknown Factor

Not retiring may help pay down debts. But it offers no protection against unforeseen situations like high tax bills, unexpected health challenges, or a family member in need of financial help. People commonly turn to credit cards for unexpected expenses or other high-interest options. This often puts retirees already saddled with debt into more even debt than they can handle. One way to address this debt is to start making a plan to get out of it.

Planning to Tackle Debt

Making a list of debts and include the amount owed, the terms of repayment, and the interest rates is a good place to start. From this list, put the debts that cost the most at the top and plan to pay those off first. But before thinking how to pay them off, ask how these debts came about, to begin with. Understanding the source of debt and creating a budget or a financial plan will help prevent the same debt problems at a later time.

Financial Options

Lack of financial resources often contributes to current debt problems as well as recurring ones. This is why financial experts frequently advise retirees not to rush into any particular financial option to address debt. Instead, consider assets that already exist. A home is usually the largest asset that a retiree has. Refinancing the home or taking out a reverse mortgage are two popular options that people take advantage of. But both of them come with risks.

Refinancing a mortgage lowers payments and can provide cash out in the immediate. However, it can strain the budget over the long term. People who continue to work after reaching retirement age cannot work forever. Therefore, the new mortgage payment has to be comfortable to pay when income is less.

Since reverse mortgages do not require a payment, this may seem like an option for most older Americans looking to pay off debt. But reverse mortgages are very complex transactions and they are problematic due to maintenance requirements and for homeowners that have other people living with them. The overall cost of a reverse mortgage loan is also a factor to consider.

Options for Accessing Home Equity

Accessing home equity is a solution for retirees that have debt. But if a refinance payment is too high and a reverse mortgage is too complicated or doesn’t work for the situation at hand, what is the alternative for accessing equity?

Consider a home ownership program like SmartRE. SmartRE allows homeowners to access their home’s equity by selling a portion of the home’s value to an investor. The homeowner can use the proceeds from the sale to pay off debts without extending the term of an existing mortgage or putting their home at risk with a complicated reverse mortgage.

In states like California where the cost of real estate continues to rise, drawing down on home equity benefits both the homeowner and the investor. The homeowner will continue to benefit from the equity in the home and have an affordable way to repay the investment.

Entering retirement with debt is a challenge that causes stress and anxiety for many people. That doesn’t have to be the case. Creating a financial plan and considering the best way to utilize existing assets is one way to eliminate debt for good.

To learn more about the smart way to leverage home equity, visit SmartRE today.

Sep, 11, 2019 Topic: Equity

What is Equity?

What is Home Equity

Home equity is a term associated with real estate. Over time, homeowners often wonder if there’s anything they can do to leverage the equity that they’ve gained while owning the home. Understanding what home equity is and how to use it is key to making smart decisions about the way to use it when you need it.

Defining Home Equity

Put simply, home equity is the actual part of the home that you own after subtracting any mortgages or other money owed against the home. For example, if you bought a home for $800,000 and owe $600,000 on your mortgage you own $200,000 of it, not including any down payment you made. So who owns the rest? You own the entire house, but it’s used as the collateral for the repayment of the loan.

Because the house is considered collateral, the lender can secure its interest in the home through a lien. And that lien is the loan that gives you the money to buy your house or refinance it as the case may be. Many home loans equally apply payments to your principal and your interest. As the loan is paid down, your equity in the home rises over time.

Ways to Use Home Equity

Home equity is important because you can borrow against it for home expenses and other expenses through transactions such as refinances, home equity loans, home equity lines of credit, and reverse mortgages. People often utilize their home equity to get cash for expenses. This is due to mortgage interest usually being tax-deductible and when that is factored in with the interest rate, home equity transactions are a better alternative to credit cards or personal loans.

Home improvements are one of the most common expenses homeowners use home equity for. Kitchen and bathroom renovations top the list of improvements. But others like improving or building a deck and replacing a garage door or entry door are just as important.

Using your home equity to pay off other debts or set up emergency funds is another way to leverage home equity within reason. Before going through the process to use home equity to pay off expenses, consider how the funds will be used and make sure that the terms of repayment are clear. This is very important because leveraging home equity for personal use could raise debt payments later on.

Leveraging Home Equity with Caution

Home equity is a smart way to take care of expenses. But not all of the methods of leveraging home equity are created equally. So it’s essential to know what some of the cons of these options are. Reverse mortgages don’t require any payments to be made and the amount owed never exceeds the value of the house. But reverse mortgages are very complex transactions and they have high closing costs on top of the interest that accrues on the loan amount.

Home equity loans offer more flexibility in terms of the costs associated with them. But home equity loans and lines of credit require regular payments, along with payments on any existing mortgages on the property. The interest rate may go up over time if it’s a variable one and the payments you make can go up after the draw period closes. Borrowing more than the home is worth can also be a risk since the house value can go up or down over time. The risks of refinancing are similar to home equity lines. A refinance provides cash right away but it extends an existing mortgage and increases any existing payment which may make it a burden later on if there’s a decrease in income.

Leveraging a Piece of Home Equity

The main issue with traditional methods of accessing home equity is they put your home at risk due to terms of conditions of taking the loan like what happens if you default along with interest rates, fees, and closing costs. So why not consider leveraging a piece of your home rather than putting the whole property at risk? SmartRE does just that. It allows homeowners to sell their home in fractions starting at $100,000 with a defined fee. The homeowner can purchase the amount of equity sold back at any time with no set time limit.

If you’re interested in learning how SmartRE can help you leverage your home equity while maintaining ownership of your home, contact SmartRE today!