How retirees are turning their home equity into extra income
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For many Americans nearing or in retirement, the family home is more than just a place to live.
It can also be a powerful financial tool.
With the cost of living on the rise and Social Security benefits stretched thin, some older adults are turning to home equity for extra income.
Options like reverse mortgages and cash-out refinancing are becoming more common.
Still, it’s essential to understand the risks and rewards before making a decision.
Home equity is the difference between your home’s current value and what you still owe on your mortgage.
For many retirees, this equity may even be worth more than their savings or investments.
Two of the most common ways to access it are through a reverse mortgage or cash-out refinancing.
A reverse mortgage is a loan option available to homeowners aged 62 and older.
Instead of making monthly payments to a lender, you receive payments—either all at once, monthly, or as a line of credit.
The loan is paid back only when you move, sell the home, or pass away.
Benefits:
Risks and considerations:
Is your home a good fit for a reverse mortgage?
Homes with strong resale or rental value, low maintenance, proximity to healthcare and transportation, and single-story layouts are often better suited for aging in place and qualify more easily.
Cash-out refinancing allows you to take out a new mortgage that’s larger than what you owe on your current one.
You use the new loan to pay off the old one and receive the difference in cash.
However, unlike reverse mortgages, you must make monthly payments on the new loan.
Benefits:
Risks and considerations:
Florida realtor Alexei Morgado cautions: “A monthly mortgage payment can be a huge anxiety trigger if not planned for. It’s ideal for those who have a long-term budget plan and know they can afford to make the payments without having to string themselves along too hard.”
According to the Social Security Administration, around 73 million Americans receive Social Security benefits.
The average payment for retired workers is just over $2,000 per month—often not enough to cover both bills and lifestyle needs.
That’s why more retirees are turning to home equity to supplement their income.
Still, it's not a one-size-fits-all solution.
Beyond reverse mortgages and refinancing, here are a few additional options to consider:
Before moving forward, it helps to ask:
Using home equity to boost retirement income can offer breathing room—but it’s not a decision to rush.
Consider the impact on your finances, your family, and your long-term housing needs.
Planning ahead, understanding the risks, and talking to a professional can help you decide what’s best for your situation.
Read next: Unlock your home upgrade: Discover how to apply for financial assistance today!
Have you tapped into your home equity during retirement? Or are you exploring options like reverse mortgages or refinancing? Share your experiences, tips, or questions in the comments to help fellow readers stay informed.
It can also be a powerful financial tool.
With the cost of living on the rise and Social Security benefits stretched thin, some older adults are turning to home equity for extra income.
Options like reverse mortgages and cash-out refinancing are becoming more common.
Still, it’s essential to understand the risks and rewards before making a decision.
Your home could hold untapped financial potential for retirement income. Image Source: Pexels / AS Photography.
What is home equity—and how can you use it?
Home equity is the difference between your home’s current value and what you still owe on your mortgage.
For many retirees, this equity may even be worth more than their savings or investments.
Two of the most common ways to access it are through a reverse mortgage or cash-out refinancing.
Also read: FCC warns homeowners about dangerous mortgage lending scam
Reverse mortgages: how they work
A reverse mortgage is a loan option available to homeowners aged 62 and older.
Instead of making monthly payments to a lender, you receive payments—either all at once, monthly, or as a line of credit.
The loan is paid back only when you move, sell the home, or pass away.
Benefits:
- No monthly payments required
- Payments are tax-free
- You can remain in your home if loan conditions are met (such as paying property taxes and insurance)
Risks and considerations:
- Reverse mortgages often have higher fees and interest than traditional loans
- Your home equity decreases over time as the loan balance grows
- If you plan to move or leave the home to heirs, this may not be ideal
Is your home a good fit for a reverse mortgage?
Homes with strong resale or rental value, low maintenance, proximity to healthcare and transportation, and single-story layouts are often better suited for aging in place and qualify more easily.
Also read: Protect your home: How “title pirates” could be scamming you right now, according to the FBI
Cash-out refinancing: a lump sum now, with regular payments later
Cash-out refinancing allows you to take out a new mortgage that’s larger than what you owe on your current one.
You use the new loan to pay off the old one and receive the difference in cash.
However, unlike reverse mortgages, you must make monthly payments on the new loan.
Benefits:
- You receive a lump sum upfront
- If interest rates have dropped since your original mortgage, you might secure a lower rate
Risks and considerations:
- You’ll need to make regular payments
- If you can’t keep up, you risk foreclosure
- It’s best suited for retirees with a clear, long-term financial plan
Florida realtor Alexei Morgado cautions: “A monthly mortgage payment can be a huge anxiety trigger if not planned for. It’s ideal for those who have a long-term budget plan and know they can afford to make the payments without having to string themselves along too hard.”
Also read: Increase in US retirement pensions might not be enough. Here’s what you need to know.
Why more retirees are considering these options
According to the Social Security Administration, around 73 million Americans receive Social Security benefits.
The average payment for retired workers is just over $2,000 per month—often not enough to cover both bills and lifestyle needs.
That’s why more retirees are turning to home equity to supplement their income.
Still, it's not a one-size-fits-all solution.
Also read: Slash your bills instantly with these 60 genius tips you wish you knew sooner!
Other ways to access your home’s value
Beyond reverse mortgages and refinancing, here are a few additional options to consider:
- Home Equity Line of Credit (HELOC): A revolving line of credit that allows you to borrow as needed, but requires monthly payments.
- Downsizing: Selling your home and moving into a smaller or more affordable one can unlock equity and reduce your living expenses.
- Renting a room: Taking on a tenant—even a trusted friend or family member—can generate monthly income without needing a loan.
Also read: Dave Ramsey's urgent advice to 59-year-olds with no savings: why retiring with just your house could be a disaster
Questions to ask before making a decision
Before moving forward, it helps to ask:
- How long do I plan to stay in my home?
- Can I afford new payments, if required, on a fixed income?
- Do I want to leave the home to my heirs?
- Am I prepared for any fees, interest, or closing costs?
- Have I consulted a financial advisor or housing counselor?
Using home equity to boost retirement income can offer breathing room—but it’s not a decision to rush.
Consider the impact on your finances, your family, and your long-term housing needs.
Planning ahead, understanding the risks, and talking to a professional can help you decide what’s best for your situation.
Read next: Unlock your home upgrade: Discover how to apply for financial assistance today!
Have you tapped into your home equity during retirement? Or are you exploring options like reverse mortgages or refinancing? Share your experiences, tips, or questions in the comments to help fellow readers stay informed.
