Transcript:
Easan Arulanantham:
So one common issue in the barrier is that we’re kind of, we have a massive amount of our money or net worth in our home equity, should I ever? And should people ever consider tapping into this home equity in retirement?
Tom Vaughan:
Yeah, it comes up all the time here. Because, you know, again, this is a unique area, it might not be true in every part of the country, although I did see a stat the other day that nationwide housing prices went up 18% Last year, that’s pretty incredible, actually. So let’s just say you do have some equity in your, in your retirement, you know, what do you do with that? Part of that is, again, emotional, right? That’s part of what comes up, this is my home, like, raise my kids here, you know, all that kind of stuff. And I like the weather. And you know, I got my doctors and all my friends live here. And I don’t want to sell and that is actually a very, very common sentiment, most of the times, we don’t count the home equity in some of these plan. But once in a while, we got somebody who doesn’t have enough to really make their plan work. And then they’re sitting on, you know, 300 to $3 million 300,000 to $3 million worth of equity in their home. And they really, they got to do something or they’re going to go broke essentially with the assets that they have outside the home. So lots of different options on what you can do there. As far as that goes, it should be the last option. I mean, if you’re it should be kind of forced into it, because they don’t really believe in using home equity. I mean, I have clients that just wanted to move they, they thought that the area they were going to is just really exciting. So good, they captured like a million dollar differential. But outside of that, that’s one thing you can do is move right into something cheaper, usually into a different area, because I hardly ever see anybody move here locally.
And downsize, it does happen. But boy, it’s like a one at a 21 at a 50 time, I see that. Usually it’s somebody moving someplace else, a cheaper Area in California, we have licensed, you know, clients now in 26 states outside of California. So, you know, people that have moved to Arizona, different places where they can get a place, you know, sometimes even bigger than they have now, for less. So that’s one way to capture it. You know, you can borrow against your house through a couple different ways, right, you can use a Home Equity credit line, and just start you know, whittling away and paying for your lifestyle, using that home equity credit line. You know, that’s one option, not my favorite. But if you have to something the other way is the reverse mortgage, which is essentially similar. It’s instead of you paying the mortgage, they pay you. And so it just keeps paying you. But every time they pay you, it increases the debt against your home. There are some they used to be awful, really, really bad. But they’ve gotten really much better, where it’s basically just a debt against the house. And when you die, somebody has to pay that. So your beneficiaries would have to sell the house or deal with that to get rid of that loan. But again, for those situations where there isn’t an alternative, and you really, really, really want to stay in your house, for some reason, there’s a lot of them people really like staying in their homes, then then a reverse mortgage might be the way to go as far as that goes. Right. But you know, so again, those are kind of the concepts.
Generally speaking, if you don’t have to do it, and you don’t want to do it, you shouldn’t do it just for the purposes of going out investing. So some people say, Wow, markets making 10% a year, and I only have to pay 3% on my mortgage, I’m going to borrow against my house and put it in the market. I would never do that personally, because you know, the market is quite variable. And they there are periods of time, like the Great Depression, where it dropped at 6% and took 14 years to come back. And you’d still be having to pay that mortgage payment. And even though it was that 3% You’d be pretty unhappy. So you’re you’re basically taking a situation where you’re guaranteed to have to pay this putting into something that’s not guaranteed to give you any money. Right. So you gotta get you got to look at the history of the market, I think overall probably works, but I’d never recommend it. So you know, the only time I’d really look at using home home equity is either because you wanted to just because you want to move or because you had to and because you don’t have anything else and your plan is not going to work without it.