After retirement age many people sell their family homes for enough money to buy a smaller, more manageable home. It begs the question of whether to use equity built throughout the years to pay in full or take on a new mortgage to buy a house you want.
On one hand, the thought of utilizing equity from a large property is appealing, especially if it gives you a mortgage-free smaller property from the money gained. Depending on how well your home is maintained, keeping the large property can be very good investment as well. The home can be rented out and the income used for financing your mortgage on a smaller home. Regardless of which option you choose here are few factors to keep in mind.
Leverage is when your expected rate of return on your investment portfolio is greater than the interest rate for a loan. If you borrow money for less than what you expect to get from it, then it makes sense to take the loan.
Ongoing upkeep and maintenance should be taken into consideration should you decide to rent out your home. As a landlord, there are a lot of responsibilities to ensure a functional home. Find out what will be the next items to replace or update and the associated costs. These should be included in the cost of carrying the existing home.
In addition, think about how much time you will need to invest into keeping the home. Will maintenance be laborious or time-consuming? Are you ok finding new tenants and checking and interviewing the prospects. Real Estate professionals can serve as a property manager and can take care of some or all of these things for you for a one time or recurring fee.
Obviously, deciding whether to buy with cash or to use a mortgage depends a lot on the current interest rates, and as always, it’s important to not let your emotions cloud your better judgement. Buying too much home or deciding not to use your homes leverage can be extremely detrimental to your retirement lifestyle, and it’s always best to consult an agent before making these large decisions.