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Home buyers looking for homes for sale in Saratoga, Los Gatos, Monte Sereno and other affluent neighborhoods of Silicon Valley are aware that prices in the upper end of the market are currently soft. Astute home buyers are hoping that home values will rebound in the best neighborhoods as the recession ends and they are entering the market now.
Should seniors who have lived in their Saratoga home for many years and have built up considerable equity sell now or wait until the value of their home rebounds? What if they need cash now – are there other ways should they consider to tap that equity without selling.
Wall Street Journal Online has a report called Encore, geared for retirement planning concerns. A recent article Trading on the Future suggests that a “shared-appreciation arrangement” (equity release) is gaining popularity among homeowners in or near retirement, as an alternative to a standard equity loan or reverse mortgage on their home.
Through a share equity agreement a homeowner agrees to give up part of a home’s future appreciation in exchange for cash — typically 10% to 15% of the property’s current value. If a property’s value has declined by the time the owner decides to sell it or terminate the contract, the homeowner gets to keep some or all (depending on the agreement) of the cash he or she is given upfront, but if it appreciates they might give up half the gain and in the end pay more than if they had taken out a conventional home equity loan.
Part of the initial appeal of a shared equity agreement to homeowners is that they aren’t saddled with monthly payments, as in the case of a home-equity loan and closing costs are typically less than that of a reverse mortgage. But be careful, because as the article explains, there are risks involved.
In my personal opinion, a standard equity loan is a preferred way to go if you need cash to live on right now (because rates are low) and want to stay in your home a while longer. If you are ready to sell for other reasons, call me and I will let you know what your home is currently worth and what real estate market trends are telling us. It’s your decision when is the best time to sell your home and you need good data and a Realtor you trust to help you make that choice.
Rick Bonetti | APR Referral Network | 408-857-8800 | DRE #01237009