Issue 25.17
Wow, welcome to summer and this crazy real estate market. The demand and lack of inventory with the price of materials have increased our home values dramatically. So, how do we as seniors benefit from rising home values if we are not planning on selling our homes?
There are always two huge advantages with our home values increasing as seniors. Without the point of fact that our home is an investment and as it rises in value, that simply means that when we pass the home to our heirs, they will benefit with the rising value simply like any other investment.
And, the home has some tax advantages when passing to heirs – versus other investments and their cost basis and gains etc.
So, here are a couple of ideas.
1. Refinance the home to consolidate all other debt. With the increase in home values, it allows us to refinance the home and treat it as cash out there by paying off all commercial debt. If we can refinance a home with for example 4% interest and benefit from the interest deduction and the low payment that is usually a no-brainer when we are retired.
Here is the scenario. We have credit cards or we have auto loans, department store cards, and or signature loans etc. the average interest rate on a credit card is 15.9% today. So, here is the argument, anytime that you can finance a 16% loan into a 4% loan, why wouldn’t you.
You take all the commercial loans or credit cards etc., and if for example you have 20,000 you most likely will have roughly about a 500.00 payment on those cards and autos. By structuring them in your mortgage, it reduces to a 100.00 payment. For every 20,000 it is roughly 100.00 per month. Clients and advisors will argue that why would you finance a credit card over 30 years? Guys, the minimum payments are set as a 15 year pay back already with crazy high interest. You will never pay them off by paying minimums.
1. So, you can continue to make your payment or the 500.00 monthly but apply it now to the mortgage at 4% interest, because you have no credit card debt. You have paid it off with the refinance of the home. You are paying down a 4% loan instead of 16% and you will pay your bills or debt off in a quarter of the time. There is no downside to simply moving the debt from 16% to 4%.
2. Second, simply use the additional savings to enjoy your retirement more liberally by having an extra 400.00 per month. It is amazing that my seniors are afraid to enjoy their extra monies. Go to dinner once a week and take a trip when you want. Just simply use the additional 400.00 to enjoy life. The down side of this is that your children will get less equity out of the home when you pass and they split the home up among the heirs. But I truly doubt any of your kids could care less how much in the home is split up. Enjoy this short life of ours in this small way.
So, with the increasing values in our homes it makes it easy to consolidate our debt especially when we are older and are on fixed income and that high interest is eating into our monthly spending.
2. The second huge advantage is with the reverse loan or the hecm line of credit. You can open a reverse line of credit and supplement your income if needed or just simply use as emergency funds over your retirement.
A. The line grows at an interest rate that is insured by HUD and or FHA, and it can be used at any time for any reason. And, the interest can never be capped. So, we will use the line to pay off any mortgages on the homes first and eliminate the current mortgage payment. Then, we will use the rest in the line to pay off all commercial credit card debt that we have out, and the remaining line of credit will remain in the line and accruing interest for your use at any time in the future if needed. You may not even need it.
B. So, if you have a small mortgage on your home, or you have your home free and clear, but you have credit card debts or you have other loans that you are currently paying on – then you need to look at the HECM line of credit with credit line growth. The higher home values will base the value of the line of credit that we can put on the home. The line never must be paid back and you can use it for whatever you choose to and you can pay it down or off at any time and simply come in and out of it as you choose. But any amounts that you don’t pay back will be owed when you have died and the kids sell the home. At that point, we will get paid back with the sale of the home the amount used, plus the interest on the amount used only. The remaining balance of the line that was not used is simply remaining in the home for the kids and their equity.
With this fast-moving real estate market, it has helped our home values increase in value. Let’s strategize your situation and try and eliminate all debt and then you choose if you want to pay back the loan at any time and not have any payment obligations.
Until next time.