Kevin McCormally: I am Kevin McCormally of Kiplinger's and I am here with Mary Beth Franklin, Retirement Editor of Kiplinger's Personal Finance magazine to talk about what will your home equity plays in your retirement plan. Mary Beth we've seen astounding increases in home equity in recent years and a lot of people I think are counting on that home to help finance the retirement. Set a good way to thank?
Mary Beth Franklin: Well, it depends how far away you are from retirement. If you're years or decades away, it could be a risky gamble that maybe your home is not going to appreciate 20% a year for the next decade, and if you are not saving enough for retirement, your home is not going to bail you out.
Kevin McCormally: Okay. Let's say you're close to retirement within a few years, then can you count on the home equity?
Mary Beth Franklin: Yes, it's a good bet at that point. You've got several options. If you have no mortgage or little mortgage, your retirement income needs are substantially reduced, just stay put. You might want to get a home equity loan though just for an emergency basis if you have some major repairs or whatever. But, you have another option, maybe you want to sell it by something less expensive and take some of those proceeds and invest it. It will really fat the NASDAQ.
Kevin McCormally: Well, what about a reverse mortgage? I hear about them, does that make sense?
Mary Beth Franklin: Well, they have been around for quite a while but are just gaining popularity. A reverse mortgage is just like it sounds. It's like the mortgage that you are paying your house, but in this case, it's in reverse, they pay you money and your debt goes overtime.
Kevin McCormally: Who does it make sense for?
Mary Beth Franklin: Well, first of all you have to be at least 62 to take one out, and how much you can get in terms of payment is based on your age, the older you are, the bigger the amount, the value of the house and the interest rates at that time.
Kevin McCormally: Let's say you borrow too much, can they throw you out of your house to recover the debt?
Mary Beth Franklin: No, you can never be forced out of your house. That's one of the great safeguards of a reverse mortgage. The loan never has to be repaid until you move out permanently or until you die, and at that point, the home would be sold, the loan would be repaid and anything left over would go to your heirs.
Kevin McCormally: Okay. Thank you Mary Beth.
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