How To Make Your House An Asset To Fund Your Retirement

How To Make Your House An Asset To Fund Your Retirement
  • PublishedMay 4, 2023

Homeowners have an advantage when planning for their retirement. Your home is an asset that you can use in several ways to help you fund your retirement on top of any pensions you have.

By planning ahead for your retirement, you can retire early, enjoy luxury holidays or buy a new car when you retire.

Here are a few of the ways you could use your home to help fund your retirement.

Increase Your Home Equity

If you are a homeowner with a residential repayment mortgage, which you’re making agreed repayments towards, then you are building up equity in your home. Every time you make a mortgage payment, some of that money pays off the interest on the mortgage and some pays off the principal lending amount. The more principal you pay, the more equity you potentially have in your home.

Home equity can be incredibly useful when you retire, and there are products out there in the market that can give you access to this untapped equity in later life.

Some mortgages allow you to make overpayments on your mortgage that pays off the principal. This can make a big difference to the amount of equity you have in your home. When you retire, you could opt to take out a lifetime mortgage to release this equity while still living in your house – which could help you buy a nestegg for your grandkids or take off on a trip around the world.

A lifetime mortgage is the most popular type of equity release. When it comes to the interest rates on a lifetime mortgage, all Equity Release Council approved plans must have fixed interest rates, or if they are variable there must be an upper cap limit.  

The interest on the lifetime mortgage can either be paid, added to the loan and rolled up (known as ‘compound interest’), or both options can be combined with some interest being paid and some added to the loan. It is also possible to repay some of the capital borrowed, penalty-free. The loan plus any outstanding interest is repaid by your estate when you have passed away or move into permanent care. In the case of couples, these situations apply to the last person passing away or moving into permanent care.

Take a look at this lifetime mortgage calculator from Retirement Solutions. It could help you to discover how much equity you have in your home and how much you could release.

Looking for property to buy? Check out Malverns leading estate agents.

Rent Out A Room, Or Your House

Becoming a landlord can be a great way to build up a nest egg to help fund your retirement. If you have some spare rooms in your home after your children have flown the nest, you can rent them out and start to generate some easy income. This can be invested in overpayments on your mortgage, or any other type of savings or investment vehicle, and be used later in life to help finance your retirement.

Some people are making a lot of money from renting the whole home, short term, through websites and apps like Airbnb. If you have somewhere you can move to, such as an adult child’s home, you can rent out your property for a profit and help generate funds you can save for your retirement. This does require some big changes in your life, and the cooperation of friends or family, but can be very profitable. The advantage of using short-term rentals is that you can move back into your home at short notice if your circumstances change or you need some time in your own space. The flexibility of these rental schemes makes them an attractive option.

Pay Down Your Debts

Many people have debts other than their mortgage, and these can still exist when you retire. This can negatively impact your retirement income and swallow up a lot of your pension funds. Before you retire, you should work hard to reduce your debt from loans, credit cards, and car financing to put as much of your pension as possible in your hands and not pay off debts. 

Sitting down and totalling up your debts can sound intimidating, but by tackling them early, you can reduce your liabilities and give yourself more money later in life. Making some small sacrifices now to pay off your debts will give you a much better retirement. You will have more time to enjoy your money when you retire too. Typically the longer debt stays on your books, the more interest you will pay. The money you spend on interest goes straight to the lender and does not benefit you at all. The less of your money that you spend on interest payments, the more you have in your pocket to spend on your retirement plans.

Downsize Your Dwelling

This is a more extreme option, but the savings you can make can be huge. If you live in a larger home but do not make much use of the space, you can move to somewhere smaller and make big savings on your mortgage payments. This will give you more money each month to save for your retirement. There can be some other advantages to this too. 

As we get older, we can experience mobility problems. Moving from a two-floor home to a bungalow means you no longer have to climb stairs to get to your bedroom. This makes daily mobility easier and helps people maintain their independence for longer as they get older. Planning for your retirement is not all about finances, you need to plan for the changes that will happen to your body as well.

By using one or more of these ideas, you can have extra money to help fund your retirement, and enjoy some of life’s luxuries after decades of hard work. Start planning as early as possible, and get your retirement plans in order. The sooner you start, the earlier you can retire.

Looking to buy property? Luckily there are plenty of affordable properties to buy in Devon.

Check out the best places to live in Plymouth and the best areas of Exeter to live.

Written By
Gesten Van Der Post

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