Planning for a stable retirement comes with making choices early in your life. The earlier the better.
Striking while the iron is hot has never meant more than in retirement planning. Because you do not know when you will retire. Age is not the only reason that causes one to retire.
Owning your own home, and by that I mean, getting rid of that mortgage as soon as you possibly can, is certainly a sound goal. People think that once they have a mortgage insurance there is no hurry to pay off their debt. Because they feel that if anything happens to them, the mortgage insurance will pay off the debt and their family will remain with the roof over their heads. Not, true. You must make sure what kind of mortgage insurance you are signed up for before you rely too strongly on it. Some people say yes for mortgage insurance and then they forget about it. When it comes to the day that you will need that mortgage insurance to be there for you, your not knowing precisely what it covers, will make a bad situation even worse for you.
Pay off you mortgage. Always! Always! Always! Debt is never a good thing to have looming over your head. The money that you will remain with after you have made all your mortgage payments on your first home, will give you an incentive to look for another property to build your equity. And to keep doing it. It is almost like you are recycling your money to get more and more into your wallet.
If you are faced with financial misfortune, tapping into your home equity, if that is your last major pool of money, can be scary. Because you know that once this is gone, there is no other place to fund what else is waiting for you in the future.
So do not start selling your home unless you have gone through all your savings and other assets.
There are ways you can tap into your home equity to help you. I worry when I hear that the first thought that come to anyone’s mind, is downsizing. Downsizing is selling your home to either rent or own a smaller home. For those in a large family who will still need the large home, the option to get a reverse mortgage might be a good resource. Or perhaps a home equity line of credit would be suitable for you.
To trim down on the expenses, dropping down a size of your home sometimes will make the most sense. A large house with a good sized garden can be a burden to maintain with expensive taxes and larger budgets to keep the house in good shape. In today’s market, moving is not a big deal, and people are even moving to less expensive countries to live in so that they can save their money.
The proceeds of a sale can fund all sorts of options – which you should always decide with a professional who will guide you in deciding the right option for you.
For the elderly, moving in with children can be a sweet option where the grandchildren are involved and taken care of while the parents plod along to make their own financial dreams come true. If this is not an available option, then moving to a retirement home might be worth looking into.
Downsizing is not simple, is not easy and is not cheap. The emotional costs are enormous. Just when things are looking bad, having to lose your home can make a bad situation even more bleak. Then the monetary costs in moving, transaction fees and taxes are not small. One must always consider at least 2.5% of the purchase price for a buying and at least 7.5% for a sale of your home going into transaction costs.
A Reverse mortgage is a loan that you do not have to pay off – or even make payments on – until you sell your home or die. This is a very good option for the aged who have a pricey home but not much money to spend in their bank accounts. With this option they get to stay on their home forever! The interest rate, however, is much higher than for a conventional mortgage. You have to be at least 55 to qualify for a reverse mortgage, and you are limited to 50% of the home’s appraised value. Now what does this mean when I say the interest rate is higher? Why would you care about an interest rate that you never have to pay back? Well, it means that when you sell your home, the reverse mortgage will take the principal amount that they lent you plus the interest they charged you for that mortgage, which is quietly compounding in the background. So let your children know of this so they do not get a rude shock when they sell your home after you pass away.
A Home Equity line of credit usually has a more attractive interest rate than reverse mortgage. Also in this case, you can take the money out as and when you need it, instead of getting it all in one lump sum. If you can manage to pay at least the interest each month, then this is the way to go. A broke senior with no income will not qualify for this. There are risks that can be dire risks. If you lose your spouse whose pension was included in order to qualify, or if you miss a payment, then you are in trouble, because they will call it in. Then you will have no option but to sell your home. If you can maintain the payments even after the loss of a spouse’s pension, you may be able to hold on to this option, but don’t be surprised if they cut back your credit limit. So for an elderly person, having someone knowledgeable in this situation to cover the payments in case of emergencies is very important.
Ok, so that is it for being ready for the future curve balls that might be thrown at you.
Source : http://www.moneysense.ca
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