Best Ways for Seniors to Access Home Equity

Quick Comparison: Six Ways to Access Home Equity

The table below sets the six options next to each other. Read across a row to see one option. Read down a column to compare one question across all six.

These options are not mutually exclusive. A homeowner may combine more than one, such as a benefits review with property tax help.

Start Here: Budget Review and Public Benefits

Before any loan, the question is whether money is already being left on the table. A household budget review lists what comes in and what goes out. A benefits check asks whether the homeowner may be eligible for help they are not yet receiving.

Programs worth asking about, in general terms, include:

• Supplemental Security Income (SSI). It is a federal payment for people with limited income and resources.
• Medicare Savings Programs. They can help with Medicare costs for people with limited means.
• The Low Income Home Energy Assistance Program (LIHEAP). It helps with heating and cooling bills.
• Property tax exemptions and deferrals. These are local programs that may lower or postpone a tax bill.

The CFPB notes that state and local programs can help with utilities, fuel and home repairs. It also says many localities have programs to help with property taxes, and that the county or town tax office is the place to check. The CFPB points to benefitscheckup.org for information about these and other benefit programs.

One caution matters here. Some programs have income or asset rules, and a lump sum from a loan or a sale could affect them. The agency that runs each program can explain how its own rules apply.

Help from family belongs in this first step too. A relative may share costs or lend money. Writing down the terms, even informally, tends to protect everyone. Families often look at this first step together when they plan how to pay for in-home care.

What Selling or Downsizing Actually Means for You

Selling is the most complete way to turn equity into cash. Once the home is sold and any mortgage is paid off, the owner no longer carries housing debt on it or the upkeep that came with it.

The trade is real. The homeowner gives up the house, the neighborhood, and the steadiness of staying in a familiar place. For someone who raised a family there, that weight is not a small thing.

Downsizing is a middle path. The owner sells and then buys or rents something smaller. It may free part of the equity while keeping some form of home. The CFPB says moving to a more affordable home can lower overall expenses.

Moving costs, the price of a new place, and taxes on a sale all affect how much is left. A tax professional can explain how capital gains rules apply to a particular sale.

Selling tends to fit when:

• the homeowner already wants to relocate, perhaps nearer family;
• the home has become too large or too hard to maintain; or
• the full value of the equity is needed, not just a part of it.

For some families this is the right path; for others, giving up the home is the part that makes it the wrong one.

Forward Equity Products: Home Equity Loan, HELOC, and Cash-Out Refinance

All three of these products borrow against the home and require monthly payments. They are often called "forward" loans because the balance goes down as payments are made. Each one adds to the debt secured by the home.

A home equity loan gives a single lump sum. The CFPB says it usually has a fixed interest rate, one that will not change, and may carry upfront fees and costs. The borrower repays it in monthly installments with interest.

A HELOC (home equity line of credit) works more like a credit card backed by the house. The CFPB explains that a borrower can generally draw up to the credit limit during a "draw period." It also says HELOCs usually have a variable rate, so payments may change. A lender may freeze the line if the home's value drops significantly or if the borrower's finances change. The FTC adds that once the draw period ends, no more money can be borrowed and repayment begins.

A cash-out refinance replaces the current mortgage with a new, larger one. The borrower receives the difference in cash. It starts a new loan term with its own monthly payments.

Can a retiree use a HELOC? Age itself is not the test. Lenders look at income and existing debts. The CFPB says these loans "depend on your income and credit." A fixed income can make qualifying harder.

What about access with no income? Forward products typically need documented income. A reverse mortgage is built differently, as the next section explains.

The shared trade is this: payments are required, and the CFPB warns that falling behind could mean losing the home. One protection applies to the main residence. The FTC says a home equity loan or HELOC on that home can generally be canceled within three business days, for any reason and without penalty.

Reverse Mortgage (HECM): What It Is and What It Involves

A reverse mortgage lets an older homeowner borrow against the home without making monthly mortgage payments while living there as a principal residence. The Home Equity Conversion Mortgage, or HECM, is federally insured under 12 U.S.C. § 1715z-20. HUD calls it the only reverse mortgage insured by the U.S. Federal Government, available only through an FHA-approved lender.

The age rule comes from 12 U.S.C. § 1715z-20(b)(1), which defines an eligible homeowner as "any homeowner who is, or whose spouse is, at least 62 years of age or such higher age as the Secretary may prescribe."

Three facts belong together whenever a reverse mortgage is described:

• The balance grows. The CFPB says interest and fees are added to the loan balance each month, so the amount owed rises over time.
• The borrower has duties. The homeowner must live in the home as a principal residence, pay property taxes and homeowners insurance, and keep the house in good condition.
• The loan comes due. The CFPB says a HECM must be paid off when the last surviving borrower or Eligible Non-Borrowing Spouse dies, sells, or no longer lives there as a principal residence. It may come due sooner if taxes, insurance or repairs are not kept up.

For someone without a regular paycheck, the missing monthly payment is the main difference from a forward loan. The duties still apply, and the CFPB warns that a borrower could face foreclosure if they run out of money for taxes or insurance.

Counseling comes first. Under 12 U.S.C. § 1715z-20(d), the borrower must receive counseling from an independent third party. HUD lists a counselor roster and the number (800) 569-4287.

HUD says the amount available depends on factors including the age of the youngest borrower or eligible non-borrowing spouse. Federal rules limit the origination fee, and the lender discloses it.

For heirs, the CFPB says neither the borrower nor the heirs will have to pay back more than the home is worth.

The missing monthly payment is real, and so are the duties that come with it; understanding both matters before any decision is made.

When Each Option Tends to Fit — and What to Weigh

Matching an option to a life is the hard part. This is where families tend to slow down, and that is reasonable. Each option below has conditions under which it tends to fit, and a question worth asking.

• Budget and benefits review. It tends to fit when costs feel out of balance but the exact gap is unclear. Ask: Which programs have we never applied for?
• Property tax relief. It tends to fit when taxes are the main strain on staying put. Ask: What does the county or town tax office offer, and is any amount owed later?
• Help from family. It tends to fit when relatives are able and willing and the need is modest or short-term. Ask: Are the terms written down so nobody is surprised?
• Selling or downsizing. It tends to fit when the house is too large or a move is already wanted. Ask: What would be left after the sale and the move?
• Forward equity products. They tend to fit when steady income can cover a new payment for the life of the loan. Ask: Could the payment still be met if a cost rises? These are compared further in a guide to home equity into cash.
• Reverse mortgage (HECM). It tends to fit when a homeowner 62 or older wants to stay, lacks the income for a forward loan, and can keep paying taxes, insurance and upkeep. The balance grows over time, and the loan comes due when the last borrower dies, sells or moves out. Ask: Do we plan to stay long-term? The CFPB calls it an expensive way to cover short-term needs if a move may come soon.

These paths can be combined. A benefits review and a property tax deferral, for example, often sit side by side. A HECM requires counseling before the loan, and for homeowners having trouble paying a mortgage, the CFPB suggests talking to a housing counselor and lists (855) 411-2372 to be connected to a HUD-approved housing counseling agency. A tax professional can speak to a sale, and a financial professional can weigh any product against the full picture, including plans for staying in your home after retirement.