Financial planning takes on new dimensions during the golden years, especially when it comes to home-ownership. Today there is a range of financing options available, each offering unique advantages and potential drawbacks to the 55 and older community. By understanding these choices, seniors can make well-informed decisions that support their financial stability and lifestyle preferences.
The use of mortgages by those ages 65 and older has been steadily increasing. According to an article on NationSwell, backed by studies published in the Regional Science and Urban Economics Journal, from 2000 to 2022, there was a 28.5 percent rise in mortgage use among older homeowners.
One of the primary reasons senior buyers might seek a mortgage is to purchase a new home. When downsizing or relocating, older buyers who are selling before
a move often have a lump sum from their sale to put towardtheir purchase. However, this is not always the case. Long-time renters who decide to buy laterlife or clients who need access to built-up equity may benefit from a mortgage.
When interest rates are low, it can be financially prudent to finance a home and invest the capital elsewhere as opposed to having it tied up in the property. These funds can be reallocated to investments, hedge funds, commodities, or real estate. This strategy can be advantageous for those who are comfortable with risk or have more disposable income to invest. By obtaining a mortgage, equity stored in a client’s home is freed up with the potential to earn returns that exceed their mortgage interest rate.
For some clients over 55, home financing serves as a means to liquidate assets for living expenses. Clients on a fixed income may need to tap into home equity
to pay bills. Fortunately, several options are available that allow them to cash out on their equity. This can be particularly beneficial for those who require additional funds for daily living expenses, medical bills, or other costs. By converting home equity into liquid assets, seniors can maintain financial stability and cover essential expenses.
Refinancing a mortgage can bea smart financial move for adults looking to reduce their monthly payments, secure a lower interest rate, or change the terms of their loan to better fit their financial situation. If done effectively, refinancing allows those to have more disposable income for daily expenses or savings. It can also be an opportunity to switch from an adjustable-rate mortgage toa fixed-rate mortgage, providing more stability and predictability in their financial planning.
While having a mortgage in retirement might seem ill advised, there are scenarios in which it can be a beneficial financial strategy for seniors. By understanding which home financing might make sense and the options available, with the help of a trusted financial advisor, you can make decisions that align with your financial goals and needs.
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