Homes in old age: planning today is better than tomorrow.
Sooner or later, people who own a house or an apartment will need to consider what will happen with the property in old age. Is the mortgage still affordable? Is the home age-appropriate? Should the house be signed over to a child one day? It is a good idea to consider this early on.
Owned property is often too large in old age
Living arrangements can change. Sometimes quickly, and sometimes almost imperceptibly – like as you become older. This is the situation that Bernhard and Ruth Schmid find themselves in. Their children have moved out, one by one. Their single family dwelling is really too big for two people.
The Schmids are also going to retire soon. They are looking forward to spending more time at home and in their garden, but are worried about their financial situation. The reason for this is that despite having Old Age and Survivors' Insurance and a pension fund, many have a smaller income when they retire. This is also the case for the Schmids.
Mortgage affordability changes with retirement
A smaller income affects the affordability of your mortgage. It may no longer be ensured. If the owners want to switch providers or increase their mortgage for a major renovation, this could be a challenge.
If it is likely that your income will be scanter in old age, it is particularly important to take preventive action early on. Do you have enough disposable assets available? Real estate and the financing for it play a key role in this. If a large part of your assets are tied into your own home, there may be options to provide more financial flexibility. For instance, you can obtain additional liquidity by increasing an existing mortgage.
Homes in old age – an apartment is sometimes better
Mortgage affordability is just one factor. At the same time, home owners like the Schmids could reduce costs if they were to live more economically and to move from their house into an apartment. A house is often less suitable for someone who relies on a wheelchair or is no longer able to climb stairs in old age. Although it is possible to convert a house to make it age-appropriate, you need to carefully weigh the costs and the benefits. In contrast, condominiums are often already built to be accessible and may be a better solution in old age.
Emotional factors often play just as large of a role as financial ones. You have achieved your dream house, lived in it for many years, and watched your children grow up in it. Nobody would like to simply give that up. So if your house is too big, it is worth looking at unconventional solutions. These options could include the addition of an in-law unit, a multi-generational house, or a shared home. Real estate is also a form of retirement provision. If you no longer occupy your own single-family home, you can rent it out. This often involves work, though.
Selling your house or signing it over to your child
If you plan to sell your property in old age, you should take steps well in advance. Selling takes time. You will get a better price by advertising at the right time than if you have to sell under time pressure. Having a longer timeline for planning also provides a wider range of options for your own living arrangements in the future.
Home owners with children often consider signing it over to their offspring instead of selling. Swiss inheritance law is a hard nut to crack. The change in ownership has to be clearly set out if there are siblings. Each child has a claim to their legal share of the inheritance. In order to prevent unfairness, either the parents or the child that the house is being signed over to can buy out the siblings. Correct timing is also important. If the house is signed over too soon, the younger generation may not have enough capital. Later on, though, the children may have already acquired their own dream home.
Right of usufruct when signing over your house
Even if they sign their house over to a child, parents can remain in the property. This is possible if a right of abode or usufruct was stipulated. With a right of abode, the parents continue to live in the house and pay for upkeep. The right of usufruct goes even further: The parents have access to the house and are still generally liable for the mortgage and pay the interest.
The advantage in these cases is that the ownership structure is already stipulated ahead of time. If the parents are no longer willing or able to live in the property, it is quicker and easier to act in response.
Early planning for what happens with property in old age
Property owners in particular have to deal with the issue of aging. This doesn't have to be a bad thing, though. Ruth and Bernhard Schmid have found a good solution. Their youngest daughter is interested in the parents' house. If everything goes to plan, they will sign the house over to her a few years after retiring and move into their own condominium.