How does your current home play into your retirement plan?
From your first home to your last, real estate can be a game-changer or dream-breaker for your retirement, depending on how well you manage it. Right now, Brisbane is going through what the Property Council calls a "seniors' housing shortfall", where older Australians are having to move out of their neighbourhood and away from their friends and family in order to access appropriate, affordable housing.
We think that's a real shame, and we're committed to ensuring that our clients only move when they want to, not because they have to – and their current property has everything to do with it. Here's what you need to know to make the most of this significant financial leverage.
The power of equity
If you really want to ensure you have a comfortable retirement, it's time to put that money to work through a home loan refinancing.
"Equity" is one of those words that every homeowner should know, but you'd be surprised by how many people fail to fully capitalise on it. It represents the difference between the amount you still have to pay back on your home loan, and what the home is now worth. So if you own a property worth $500,000, and only owe $100,000 on it, you have $400,000 in equity.
Why does that matter? Because that's money that is currently just sitting around doing nothing for your financial future. Property accrues in value over a long period of time, which is one of the reasons why it is so effective in building a retirement pot, but it isn't much use if all that capital is stuck in the bricks and mortar!
Leveraging for investment
Now, you can access that equity in a few ways. You could sell the home, but that ends up with you losing out on the long-term capital gains. You could take on a reverse mortgage, but that does the exact opposite of building wealth. No, if you really want to ensure you have a comfortable retirement, it's time to put that money to work through a home loan refinancing and investing in property.
It can be daunting taking out a new loan on your current property, but the reality is that equity in your own home is the quickest and easiest way to get started in investment. By having a well-planned exit strategy (courtesy of the property mentors at Think Money), you can wean the bank off the security on your current home and translate it to the investment property – after a few years of capital gains, of course.
Here at Think Money, we have a strategy to help you pay off a mortgage in five to seven years, rather than 30. So if you're getting closer to retirement and don't see how you're going to be able to stop working, it might be time to come and talk to us and get back on the right financial track.