All of us have dreams of retiring one day and having a little time to ourselves before we pass on, but most of us are relying on our home equity to fund that retirement, but is it a good idea?  

 

The whole idea of retirement is to stop working and have all of your time to yourself, but when you stop working, the other issue is not having an income.  Sure, there are people that can expect to get a pension, and some can even rely on only that to fund their retirement, but most of us will have to make another plan, since, even though you may be getting a pension out, it is usually so little that it really isn't sustainable.  Your home is most probably the biggest and most valuable asset that you have, which is why it can be a great source of funding for retirement, but there are things to consider and, as with every financial situation, there are pros and cons.

 

The first thing that you should note is whether the housing market is doing good or not.  If the housing market is doing bad, it is absolutely not a good idea to take a reverse mortgage on your house, since it is valued a lot less than it should be because of the housing market doing so bad.  At the end of it all, you will lose money, and you should only consider this if you have no other options.

 

There are other things that you should also note when you plan on taking a reverse mortgage on your home.  The first thing is that you are, in reality, spending the equity of your home, meaning that you will lose equity.  This means that your children will have to repay that equity if they want to keep the home if you are planning on giving it to them.  Also, it means that if they cannot afford to repay the equity, the home will be sold in order to cover what you owe to the bank.

 

Keep in mind that the housing market will change and, generally, in time, houses gain value rather than losing it, even if the markets look weak at the moment.  If you can hold on a while longer, you may be getting a much better deal, which is why you should either learn a little about the markets or consult someone who knows.  The best thing that you can do is to start saving for retirement from a young age and keep your home when you retire, because it can be passed down to your loved ones.

 

Lastly, another option that you have is to sell your home and buy a smaller home and use the surplus of money for retirement funding.  This way, your home (the smaller one) is secure and you can still pass it down (albeit smaller and of less value) while still being able to retire comfortably.