Many people can’t decide what is best when they become financially secure enough to buy a house. Sure, it’s nice to own your own property, but do you really want to be in debt for decades with a mortgage? You’re happy renting a flat or house, so what’s the point in buying a home?!
Well, the point could be that it helps immensely when you retire. Retirement is such a strange thing, we reach a certain age where we have to stop working full-time. As a result, we’re left with nothing but our savings – and hopefully, a pension, depending on how well we planned for this point in our life. With that in mind, how exactly can owning a house be important during retirement?
You have an asset to sell
Essentially, houses are financial assets. They are investments that tie up your money in an asset, and you’re free to sell it whenever you want. This means that you always have access to money when you have a house. If you need extra funds to help you through retirement, you can sell your house. Where will you live? Well, you sell your home and move into a cheaper place – like a flat or a smaller house. You can use some of the money from the sale to pay for your new place, but you should still have a significant chunk leftover.
Consequently, you can use this money as an emergency fund to help you if necessary, or you can invest it again. Either way, you’ve got access to extra money to help you throughout the years where you no longer work. The best thing is, as long as you keep your house in a good condition, you should make a profit from the sale. This is because you’re likely selling it 20 or 30 years after you bought it, so the value will appreciate. Therefore, you can think of buying a house as a way of saving thousands of pounds in a very high-interest savings account!
Equity release
Pensioners who live in a mortgage-free home and don’t want to move can get cash from its value. The way to do it is called equity release. Although it has a bad press in the past, nowadays it is better value and there is a lot more choice. It can be a sensible way of solving the conundrum of living in a valuable home and not having enough to spend. You borrow money against the value of your home. You are charged interest on the loan which is added to your debt each month. When you die the total owed is taken from your estate. Good equity providers never let your debt exceed the value of your home.
You don’t waste money on rent
Another benefit of buying a house is that it stops you from wasting your money on rent. Granted, when you buy a house, you will probably need a mortgage. You’ll have to compare lots of mortgage quotes, but the result is that you’re paying off your mortgage each month as well. So, is this any different from paying rent?
Yes, it absolutely is! You see, rent is always a temporary thing – you never want to do it your whole life. When you rent, you pay for something that’s not yours. When you have a mortgage, you pay for something that will be yours – and that you can sell for cash whenever you like. Also, the sooner you buy a house, the less time you spend paying rent. Otherwise, you may end up paying rent for ten years before finally buying a house. This way, you still pay for a mortgage after, but you’ve wasted 10 years’ worth of money on rent!
Long term gains
Five years tends to be the break-even point when you gain enough appreciation in the value of your house to cover the cost of buying and selling. Staying in a house for a decade almost always tips the scale towards homeownership from a purely financial point of view. Your housing costs will be more predictable and you will have an asset you can leave to your children and grandchildren, the value of which will have grown tax free for many years.
In conclusion, buying a house is crucial for retirement planning as it gives you an investment that can be sold to generate retirement cash. It also helps you use your money wisely in the years before retirement, rather than blowing most of your income on rent.
(collaborative post)