Home equity accounts for approximately 70% of a senior’s assets, not including social security or pension.  Often times tapping into this equity becomes inevitable when facing health crisis or financial restrictions in retirement.  Using home equity should be part of a larger financial plan and there are a few ways it can be incorporated.

Reverse Mortgage

A reverse mortgage is available to seniors 62 and older, including married couples.  Homeowners who obtain a reverse mortgage will have NO mortgage payments, and they will be able to access the equity in their home via monthly payments, a line of credit, a lump sum, or even to purchase a different home.  The loan does not have to be repaid until the last borrower passes away or permanently leaves the home, at which time there are options available to heirs.  The amount of the loan depends on the amount of equity in the home and the age of the borrowers – the older the borrower, the more money they can receive.  This is an excellent option for seniors across the board – whether on a fixed income or already affluent looking to protect their retirement portfolio.

Home Equity Loan

A home equity loan (HELOC) also taps into equity by borrowing money against the home.  This type of loan will be processed as a conventional loan and standard income and credit restrictions will apply, as well as monthly payments will need to be made to the lender.  Any health or future financial concerns should be thoroughly thought through prior to taking out a home equity loan.  Loading up the home with debt during retirement can be risky and could result in loss of the home if the borrowers are unable to make their monthly payments.

Downsize

Another option would be to downsize all together by selling the existing home and moving into a more modest situation.  Depending on the amount of equity in the home, a homeowner may be able to sell the home for enough money to comfortably be able to make rent or mortgage payments for 10 to 20  years.  Just as with a home equity loan, this option could be risky for a person with health concerns as the funds set aside for housing could be needed elsewhere.  If an owner is considering a move, they should also consider the Reverse Mortgage for Purchase, as this may offer the best bang for their buck when purchasing.

Before making any major decisions regarding how to effectively use the equity in your home, it is best to consult with a financial adviser and a reputable reverse mortgage lender.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.