Should You Use Your Home Equity to Supplement Retirement Income?  

Key takeaways: 

• Retirees who are concerned about income may find that their home can serve as an important resource.
• Answering six key questions can help you decide if tapping your home equity is a good move for you. 

If you are 65 or older, and live in a home you’ve owned for some time, chances are good that you’ve accumulated equity in your home over the years. In fact, homeowners 65 and older have median home equity of $250,000, according to the National Council on Aging. Instead of letting that equity sit there in your house, should you use it to supplement your retirement income? Review these six questions to see if it makes sense for you. 

1. How much equity do you have in your home? 

Home equity is the difference between the current market value of your home and the amount you still owe on it. It’s basically a measure of how much of your home you own outright. As you have paid down your mortgage over the years and as home values have increased, you have likely experienced a significant increase in your home equity. 

Consider that, nationwide, home equity levels have doubled between 2017 and 2024. The numbers started to soar in 2020 as home values skyrocketed in an environment of low interest rates, low for-sale home inventory and high buyer demand. In February 2020, according to the National Association of Realtors, the national median home price was $270,100. This August, it was almost $417,000 – more than a 54% increase in fewer than five years. 

If you owned your home prior to 2020, you probably have benefited from this market and may be sitting on a literal wealth of untapped home equity.  

2. Do you struggle to make ends meet each month? 

You’re not alone. Many seniors on limited incomes have a hard time paying monthly bills, especially as inflation has eaten away at limited incomes. The National Council Aging estimates that more than 17 million Americans aged 65 and up are “economically insecure.” 

Even if you are not struggling, you may want to supplement your existing income. Along with inflation, rising healthcare costs and people living longer have resulted in a situation where a fixed income simply does not go as far as it used to. 

3. Do you foresee large upcoming expenses (such as for home repairs or medical procedures) for which you do not have available cash on hand? 

Home ownership comes with benefits and costs, and chief among those can be ongoing repair and maintenance costs. Accessing available home equity can provide a lump sum of cash to pay for these essential expenses. 

4. Are you interested in making major home renovations, perhaps to help age in place, that will require a large cash outlay? 

According to some sources, as many as 75% of people over age 50 want to stay in their homes or communities for as long as possible. That desire to “age in place” necessitates a home that can accommodate potential mobility issues and challenges. Making the changes to increase safety and comfort can be worth it, but costly. 

5. Are you still carrying credit card debt? 

Credit card debt eats away at the amount of money you have to do the things you want and take care of things you need. With average interest rates at more than 20%, carrying credit card debt means you end up paying (the card issuer) much more than the original price of the item you bought. Using home equity funds to pay off credit card debt once and for all can be an excellent move for retirees. 

6. Would you qualify for a loan-based home equity product, like a home equity loan or home equity line of credit? 

Many homeowners are familiar with a home equity loan (HEL) or home equity line of credit (HELOC) as ways to access home equity. An HEL provides a lump sum of money up front, while a home equity line of credit provides a line to draw on as needed. However, both require qualification on the basis of your credit, your home’s loan-to-value ratio and your debt-to-income ratio. For retirees with limited income, these qualification criteria can be real obstacles. 

In addition, an HEL or HELOC comes with monthly payments. Retirees must be able to comfortably afford these payments without fail. Otherwise, they can risk losing their home through foreclosure. 

Alternatives to HELs, HELOCs 

The good news is that there are alternatives to loan-based equity products sporting monthly payments. One is a reverse mortgage. Available to homeowners over age 62, a reverse mortgage involves a lender paying the homeowner a monthly amount in exchange for an increasing share of the home’s equity. 

Homeowners will have closing costs (often higher than those of traditional mortgages), origination fees, loan servicing fees, monthly mortgage insurance premiums and an upfront mortgage insurance premium. The mortgage ends when the home is sold or when the homeowner passes away. A homeowner can also lose the home if they fall behind on property taxes or insurance payments, let the home fall into disrepair or move out for any reason. 

A home equity agreement, also called a home equity sharing agreement, is an option for accessing home equity without taking out a loan or adding monthly debt payments. With an HEA, a homeowner receives cash up front in exchange for a portion of the future value of their home. There are no additional monthly debt payments because it’s not a loan. 

With an Unlock HEA, credit scores as low as the 500s may qualify, and income requirements are flexible, making the HEA a good option for many retirees. 

Conclusion 

Experts don’t recommend accessing home equity to fund frivolous expenses or lavish lifestyles. But for homeowners who have accumulated significant equity and have a reasonable need to supplement their income, home equity can be a smart choice. As with any financial transaction or decision, carefully examine your available options before moving forward.

As you conduct your research, you can learn more how a no-debt, no-loan HEA can help.