Home equity can be a valuable asset for retirees to tap into as a way to help safeguard and improve their retirement outcome. There are several ways to use home equity in your retirement plan, including a home equity loan, home equity line of credit (HELOC), or a reverse mortgage.

A home equity loan, also known as a second mortgage, allows homeowners to cash out some of their home equity. Lenders will typically allow you to borrow up to 80% to 85% of your home equity. With a home equity loan, you get a lump sum of cash when you open the loan.

Home equity loans are fixed-rate loans, and you must start to repay the loan immediately. The typical home equity loan term is five, 10, or 15 years. You can use the cash for anything, but never lose sight of the fact that you have to keep up with your payments.

A HELOC is another option that allows homeowners to borrow against their home equity. A HELOC is a revolving line of credit that works similarly to a credit card. You can borrow up to a certain amount for a set period of time, usually 10 years. During this time, you can withdraw money as needed and only pay interest on what you borrow. After the draw period ends, you’ll enter the repayment period and start paying back both principal and interest.

A reverse mortgage is a popular way for seniors to tap into their home equity in retirement. It allows homeowners aged 62 or older, (55 in some states), to convert some of their home equity into cash without having to sell their homes or make monthly payments.

There are several types of reverse mortgage options, including opening a line of credit to tap into as-needed, a lump-sum payment, and drawing monthly payments for a set period of time or for the entire time you live in your home.  Borrowers often combine these options, such as taking an up-front lump sum, and keeping the remaining balance available as a line of credit.

Overall, using home equity toward retirement works best for those with a high level of equity in their homes. It can help secure your next property purchase, provide an opportunity to capitalize on investments or pay down debts, and help grant long-term financial security.

We recommend that you first consult with a mortgage expert to learn more details about each available option in order to find the best fit for your needs.