Thursday, March 03, 2011

Use Equity or Downsize Your Home?

Many retirees have felt the effects of the recent recession during their retirement. Cash seems to be harder to come by as many have their funds tied up in their home, which forces them to adhere to a strict, and often small monthly income.

With medical bills or the interest to restart old hobbies overhead, many New York retirees consider cashing in on their home’s equity to gain some extra cash. However, this may not be the most cost-effective choice for asset rich and cash poor retirees.

Cashing out, or taking out an equity loan, is often costly and can leave little in the form of an inheritance for family left behind. These types of loans must be repaid plus interest once the home is sold. The longer a retiree lives, the more interest they will have to pay once the home is sold, which can double the amount borrowed in as little as 15 years.

A more cost-effective option to obtaining more on hand cash may be for retirees to simply downsize. Retirees may sell their home, and then purchase a smaller home or condo for less to gain extra cash. If they are worried about not having enough room for all of their additional furniture, retirees can rent a storage unit. Storage units are safe and inexpensive ,and some are even climate-controlled, making them ide storage facilities for family heirlooms or extra furniture.

There are plenty of less expensive real estate options for retirees in New York, and they should consider downsizing their home before entering into an equity loan program. Though these types of loan programs may be ideal for those without family members, for those with family they anticipate leaving behind, an equity loan may significantly decrease the inheritance amount needed to cover unpaid medical or funeral expenses.

Note: Some government pensions can help pay for accrued medical expenses such as in home care. Take for example, the Aid and Attendance pension for veterans.