We have already looked the benefits of buying a first home and then a larger home as your family expands. This post focuses on the other benefit of owning a home, the fact that you are automatically saving some money every month.
Because your fixed rate mortgage will be set up to be paid off in 30 or 40 years, depending on what you choose to do, every monthly payment reduces the amount owed to the lender. This process is called amortization. This means that every month you get an additional portion of the home that you own out-right, known as equity in your home. You can speed-up this process by paying whatever additional amount you can comfortably set aside. So if at the end of the month you have $500 you can save, consider paying down your loan by a couple of hundred dollars. This leaves you something for your rainy day fund (in the form of savings) while also saving you money by avoiding interest (by paying over and above your monthly payment). In turn these extra payments will shorten the number of years of being in debt. The more you can pay over and above your mortgage payment, the faster the loan gets paid off and the less you pay in interest on the loan.
Eventually, you will come to a moment where you either want or have to retire. This is when the benefit of equity in your home will make all the difference. Now you may think, “But I still have to live somewhere. How can I hope to sell my house and afford to live here?” The answer is complex but in its simplest form, once you reach 62 you can qualify for a special mortgage even if you are unemployed. Your credit score becomes immaterial at this point as far as this particular mortgage goes.
Let’s say you are house rich because you own the home outright but are struggling to live on your social security benefit. This mortgage allows you to cash out up to 50% of the value of your equity in your home at age 62 and the percentage increases every year until it peaks at 75% cash out for people 75 years and older. You only need to pay the property taxes, insurance and homeowners’ association dues, if there are any. In other words, no monthly mortgage payments. Unlike previous versions of this mortgage, you are covered by the FHA so you have assurances. Among them, you will not have to move out of your home until you reach 150 years of age. You can read some more details here.
Thus home ownership allows you to save for the future while also providing you with an eventual comfortable retirement where your basic needs are met and you do not need to worry about how you are going to make it without having to become a burden to your children.
As I said, this is complex and each case will be different. It is very much in your interest to discuss this in detail to understand what you can do now to plan for a worry-free life down the road. In addition to being an expert at first-time buying, I’m also a certified Seniors Real Estate Specialist. I can work with you so you can get the maximum benefit for your situation when you start out, all along the way and into retirement. Call/text me at 760 622 5087 or drop me a line to set up an appointment. It will be the best hour you’ve ever spent planning for your future.