For many retirees, a home isn’t just a place to live—it’s one of their most valuable assets. As you move through retirement, especially in high-cost area, tapping into your home equity can be an option for covering major expenses, supplementing income, or preparing for unexpected life events.

Fortunately, there are smart, tax-efficient ways to unlock your home’s value—without having to sell it. This guide will walk you through options like reverse mortgages, HELOCs, and strategic downsizing to help you preserve your lifestyle, support your Social Security account, and manage your finances more flexibly.

What Is Home Equity?

Home equity is the difference between your home’s market value and any remaining mortgage or liens. If your home is valued at $600,000 and you still owe $150,000, your home equity is $450,000. This can be accessed through a variety of tools—often with low interest rates and flexible terms.

Why Tap Into Home Equity in Retirement?

Leveraging your home equity can help you:

• Supplement monthly income
• Cover college tuition for grandchildren
• Bridge income gaps before reaching full retirement age
• Avoid early withdrawals from retirement or savings accounts

Rather than drawing down your IRA or 401(k) during a market downturn, tapping equity can help maintain your long-term financial health.

Option 1: Reverse Mortgage

A reverse mortgage—particularly a Home Equity Conversion Mortgage (HECM)—is available to homeowners age 62 and older. It allows you to convert a portion of your equity into tax-free cash.

Key Features:

• You receive a line amount, lump sum, or monthly payments
• No monthly mortgage payments are required
• The loan is repaid when the home is sold or the borrower moves out or passes away

Pros:

• Proceeds are not taxable income
• Keeps you in your home
• Federally insured with borrower protections (for HECM reverse mortgages)

Considerations:

• May include an origination fee and closing costs
• Reduces the value of your estate
• You must maintain the property and pay property taxes and insurance

This is a good option for retirees who want to remain in their home long-term and need extra income.

Option 2: Home Equity Line of Credit (HELOC)

A HELOC is a revolving credit line that lets you borrow against your home equity as needed—great for flexibility and lower interest than credit cards.

How It Works:

• You borrow up to a credit limit, typically 85% of your home’s appraised value minus the mortgage
• Only pay interest on what you use
• Interest may be tax deductible if used for home renovations

Key Terms:

• Often comes with a variable rate, though some lenders offer a fixed rate portion
• May involve an annual fee
• After the draw period, a repayment period begins (usually 10-20 years)

Approval Criteria:

• Strong credit history, credit score, and FICO score are typically required
• Lenders assess your credit approval based on income and debt-to-income ratio

Strategy Tip: Use a HELOC to avoid withdrawing from retirement accounts during market downturns, or to cover expenses like college tuition or medical bills.

Option 3: Downsizing Without Selling Your Home

If you’re not ready to sell, there are other ways to unlock equity:

• Rent out part of your home (e.g., basement or an ADU)
• Consider house sharing with a family member or fellow retiree
• Sell a second property, like a vacation home

This allows you to stay in your home while generating extra income or accessing liquidity for major expenses.

Tax Considerations

Understanding the tax implications of these options is important:

• Reverse mortgage proceeds are not taxable—they’re considered loan advances
• HELOC interest is tax deductible only if used for home renovations
• Rental income is taxable but may be offset by expenses like repairs and depreciation

If you sell your primary home, up to $250,000 ($500,000 for married couples) in capital gains may be exempt if you’ve lived in the home for at least two of the past five years.

Is This the Right Move for You?

Tapping into your home equity might be a smart financial move if:

• You’re at or near full retirement age
• You want to delay drawing from your Social Security account
• Your savings account isn’t enough to cover rising medical or housing costs
• You need cash for major expenses like college tuition or aging-in-place modifications

Every situation is different, and the right approach depends on your goals, loan amount needs, and credit history.

Let TruNorth Advisors Help

At TruNorth Advisors, we help retirees evaluate all their options—from understanding loan amounts and origination fees to selecting between a variable rate or fixed rate product. We provide clear, tailored guidance to help you maximize the value of your home and protect your financial future. Schedule your complimentary consultation today and explore how your home can fund your retirement—without uprooting your life.