It’s a well-known fact that for many seniors, the home is their single biggest asset, often accounting for more than 40% of their total net worth. And with interest rates near all-time lows while home values are still high, this combination creates the perfect dynamic for getting the most out of your built-in equity.
However, many people aren’t taking advantage of this unprecedented period. According to recent statistics from the mortgage industry, senior homeowners in the U.S. are now sitting on more than 7 trillion dollars of unused home equity.
Not only are people living longer than ever before, and with greater healthcare available to enable them to continue doing so, but there is also greater uncertainty in the economy and future structure of taxes. With home prices at new high levels, not taking advantage of the opportunity to free up some of this wealth may be short-sighted when looking for the best long-term outcome.
Some families have used Home Equity Conversion Mortgage loans (HECM) to turn their home equity into extra cash for retirement. There have been many misconceptions about these loans and they are not suitable for all people. However, for seniors living on fixed incomes and not wanting to relocate for other reasons, a HECM loan can be worth looking into.
However, there are reasons why people choose to sell their homes. They might do well to move closer to children and grandchildren for a higher quality of life and family enjoyment. Others might like the benefits of an age 55+ community with programs and activities to suit their current and future lifestyle. It can also be a way to gradually transition into a life without as much maintenance to have to think about, or uncertainties about how well the home might suit them through the years to come. And of course, the money they could free up might be useful for traveling, buying a lower-cost place, funding caregivers, etc.
All things considered though, there are several reasons why seniors do not elect to sell their homes at the same point in their lives that previous generations had done. For some it is a factor of simply feeling overwhelmed at the prospect of dealing with decades of accumulation of personal things, stored boxes of their children’s stuff, etc. Often no one has suggested a plan of action that can gradually resolve this challenge, and how it could be comfortably accomplished while they are still living in their home.
For others, the idea of paying capital gains taxes is not acceptable – or their children decide for them to not sell so they can inherit the property years later at a stepped-up basis. Some would sell their home if they already had somewhere else to go, and are not aware of ways that they could accomplish that. In many cases they have not been counseled on a wide range of alternative life styles that might be healthier, or provide facilities that would give them many activities to share with other active seniors.
Still others would put their home up for sale if they needed to sell before buying their next home, but did not know of a way to be protected in case they were unable to find a suitable replacement. There are always creative options that can be considered to enable remaining in place for either a short or longer term while completing the process involved in making a move.
Homeowners who are interested in learning more can request a FREE Seniors Information Guide by calling (310) 600-7422 or writing [email protected]
Reverse mortgages offer homeowners aged 62 and older a way to access their home equity, providing financial relief without having to leave their property. While these Home Equity Conversion Mortgages (HECM) can eliminate monthly mortgage payments, consolidate debt, fund home improvements, and supplement retirement income, they come with high costs, foreclosure risks, and potential impacts on government benefits.
Proposition 19 provides expansion and qualifications regarding limitations on property tax increases for people over 55, severely disabled, transfers of certain inherited properties, or victims of wildfires or other natural disasters.
After reviewing various alternatives and different courses of action, I am often told that their decision is to not sell the property because of the tax consequences.
This is the second in a series of articles in answer to requests for more informational help with “downsizing” issues for seniors. The focus here is on key questions to ask before beginning a process of “rightsizing.”