A house may be your biggest asset, but equity alone does not help cover everyday expenses. For people over 60 living on fixed incomes, higher health care costs, insurance premiums, property taxes, and the expense of making a home safer and more accessible can quickly eat into savings.
Still, selling the home is not the only way to access cash.
Below are four options older homeowners can consider for unlocking money from their homes while continuing to live there, along with the main advantages and drawbacks of each.
1. Apply for a Home Equity Conversion Mortgage (HECM)
Homeowners age 62 and older may be eligible for an HECM through HUD. This federally insured reverse mortgage can provide money in several forms, including monthly installments, a single lump sum, or a line of credit.
Unlike a standard mortgage, no monthly mortgage payments are required. The loan is repaid when the home is sold, the borrower dies, or the property is no longer the primary residence, according to the Consumer Financial Protection Bureau (CFPB).
2. Set Up a Home Equity Line of Credit (HELOC)
A HELOC is another way to borrow against home equity. People often use it for renovation projects and other financial needs, and more than one draw may be possible. However, because HELOCs usually have variable interest rates, monthly payments can change over time, the CFPB says.
3. Take Out a Home Equity Loan (HEL)
A HEL delivers a lump sum upfront that can be used immediately. These loans typically have fixed interest rates and predictable monthly payments, which can be easier to handle on a fixed income.
4. Look Into a Cash-Out Refinance
For homeowners with substantial equity, a cash-out refinance can be a useful option. It replaces the current mortgage with a larger one, and the lender pays out the difference in cash, Freddie Mac said.
According to Freddie Mac, cash-out refinance proceeds are often used to pay off debt, fund home improvements, or provide quick access to cash.
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