Canada's Condominium Magazine

Home equity or retirement savings for unexpected expense?

If your child got accepted into an American Ivy League university like Harvard or Yale, where tuitions and costs can be in the $60,000 per year range, would you be able to assist financially? Assuming your child did not have major help with paying, such as a scholarship or grant, and assuming you are not wealthy, what would you do?

Typically, parents have two main options when large sums of money are needed for emergency expenses like illness, or for situations that have not been adequately prepared for otherwise, like college education for the kids: they can tap into their retirement savings, or they can take equity out of their homes.

Neither of these two options may be desirable, but is one at least better than the other? Is there a lesser of the two evils?

It turns out that there is. For the relatively small number of parents in the US who have to deal with this situation—just 5 per cent, according to a survey by the country’s principal lender to students, Sallie Mae—the less bad solution is the home equity. Eating away at your retirement savings, financial planners agree, should be a non-starter.

Why? Because people are less likely to repay what they take out of their retirement savings. The result? Inadequate retirement savings when the time comes to use them.

But refinancing the home and taking out cash, or getting a home equity loan or a home equity line of credit—a HELOC—lets the parent pay the loan back gradually. It’s best, say experts, to have a plan to pay it all back within ten years. The point is, you have to pay it back. And your retirement nest egg remains intact as you do.

Another benefit, though only for US home owners, is that interest on their mortgages and on home equity loans is tax deductible.

Other Popular Stories

Living happily ever after in a condo: Top 5 “Happiness Factors” to consider before buying a condo; it’s not what you think

Living happily ever after in a condo: Top 5 “Happiness Factors” to consider before buying a condo; it’s not what you think

The condominium market is increasingly the go-to choice for urban dwellers, with the price of detached houses now out of reach for many. Condo living have distinct advantages in this hot market. It also has its own unique issues, starting with how to find a reputable builder/developer management company — and the 4 other “Happiness…

Social housing crisis — With a wait list of 181,000, what help is in sight for the proposed shut down of 1000 TCHC units?

Social housing crisis — With a wait list of 181,000, what help is in sight for the proposed shut down of 1000 TCHC units?

The pending Rental Fairness Act attempts to protect the 1.2 million rental householders in Ontario. But there are 181,000 people on the social housing waiting lists in Toronto alone that apparently have no relief in sight — with Toronto’s plan to shut down another 1000 units. The Ontario government may not be directly responsible for…

Rental Fairness Act: Act of kindness, or barrier to affordable housing? Either way, it will change everything for renters.

Rental Fairness Act: Act of kindness, or barrier to affordable housing? Either way, it will change everything for renters.

With 1.2 million rental households in Ontario, frequently rented from condo-owners, the stakes are high for Ontario residents in a “fairness” rental act. Ontario is following through on their announcements of rent control reform. A news release from Ontario’s Ministry of Housing makes it clear The Rental Fairness Act, 2017, is a coming reality. It’s safe…

SHARE WITH US

Subscribe to condo.ca

@ 2017 condo.ca  |  Designed by Persona Corp