It’s been happening a lot lately. During a heart-to-heart, a friend will confess their money-related worries. Here’s how these conversations usually go. Retirement is on the horizon, and they know they haven’t been saving enough. To make matters worse, their kids are barely scraping by. Although they’ve been offering as much financial support as they can, they’re not sure how long they can keep it up.
Sound familiar? If so, I totally relate. The good news is, there are steps we can all take to make sure we’re secure in our golden years—and help our kids prepare for the future! For many of us, it starts with the equity we have in our homes.
Are you ready to make the most of your great, untapped resource? Here’s what you should know about making your home equity work for you and your family…
Pulled in two directions
I’m 50 years old, and my son is 21. As retirement approaches, my husband and I have been thinking a lot about how to leverage our assets—not only to ensure our shared future, but our child’s as well. We’re far from alone.
According to a recent poll from RBC, an incredible 96 per cent of parents with adult children report giving them some sort of recent financial support. About one-third say they’re worried about the effect it will have on their savings, while another third expect that they’ll have to push back their retirement plans because of it!
We love our kids, and we hate seeing them struggle. Rent is expensive. Buying a home is even more so. Employment can be unstable these days—and that university education we’ve always wanted for our sons and daughters? Well, it doesn’t come cheap.
If, like many Canadians of our generation, you’re trying to balance your future needs with those of your children, I have two words for you. Home equity. Here’s how to leverage it to help your kids—and yourself—financially.
Home equity: how to make the most of it
Let’s start with the basics: what do we mean when we talk about home equity? Put simply, it’s the portion of your home that you own outright. In other words, it’s the market value of your property, minus what you still owe towards your mortgage.
You can use your equity to grow your wealth, but first you have to access it! Here are a few ways to start tapping into it now:
Downsize your space
There are many reasons why downsizers opt for smaller homes, but one of the biggest is to make a tidy profit when they sell. In other words, putting your house on the market will allow you to unlock your equity—which could leave you with a very impressive nest egg! By encouraging you to find your ideal smaller space, the process can also help you prepare for happy, low-maintenance retirement.
When it’s time to put your profits to work, you have options. You can buy an annuity, which will provide you with an income when you retire. You can contribute more to your RRSPs, your GICs, or your TSFA (Tax Free Savings Account). Lastly, you might want to consider looking into stocks and bonds—or even purchasing a property to rent! I’m a huge fan of investing in real estate, and not just because I’m an agent. You can read more about my personal experience buying an investment condo—and the impressive return it provided—here.
Once you’ve cut back on your living expenses, you can build your wealth quicker than you otherwise would. The result could be a lot more money for retirement—and to help your kids pay for school, buy a home, or simply cover their bills when funds are tight!
Obtain a reverse mortgage or an HELOC
Of course, you don’t have to sell your home to make use of your equity. You can also leverage it by taking out a loan and investing the money you borrow. One option is to get up to 55 per cent of the value of your home with a CHIP Reverse Mortgage Plan. You won’t have to make monthly payments on this loan, but you should know that the interest rate on it will be relatively high. That said, depending on your situation, it could be a great way to free up some funds for an investment!
Another option—and it’s one that many homeowners prefer—is to obtain a Home Equity Line of Credit (HELOC). With an HELOC, you can borrow get up to 65 per cent of your property’s value. From my point of view, one of the biggest advantages of going this route is the flexibility. Instead of receiving one big lump sum, you can just take out the money you need—when you need it. Here’s what that might look like.
You could secure an HELOC, use it to buy an investment property, then pay down the loan with the monthly income you receive from rent. If you do it wisely, you’ll be left with a unit that could make you money for years to come!
Rent out your space
Last but not least, have you ever considered renting out part of your home for some extra cash? I know it’s not for everybody. But a lot of us are living with more square footage then we need.
Think about it. With a few upgrades (and possibly the addition of a separate entrance) your basement could become a whole new source of income for you! That’s more money you can use to help your kids achieve their life goals—and start off your retirement on the right foot.
It’s never too early (or too late) to get started!
Some people underestimate the amount of time it takes to build a sizeable nest egg. Others feel they’ve waited too long to start saving. The truth is, the time to put your home equity to work is now.
Talking about retirement, our children, and our financial worries is a good thing. I know my life would be a lot harder if I didn’t have good friends and close family to confide in! But there’s one more person we should all be talking to, and that’s a trustworthy financial advisor. With a bit of careful thought and some expert advice, you can start ensuring the financial security of your family—for today, and in the long term!
Thinking about downsizing or buying a rental property as part of your investment strategy? I’d love to take a few minutes to talk. If you have questions—or you’re ready to take the first step—I’m here. Give me a call at 416-550-7555 or reach out at Lisa@LisaSinopoli.com.