Home Equity for Retirement Income: All You Need to Know

By Tom Burchnell
Home Equity for Retirement Income

Do you plan on using home equity for retirement income? If you are, read on to learn all about using home equity for retirement savings.

When you’re ready to hang up your hat and retire, you may need some extra monthly income to help fund it. If you own a home, it’s most likely your largest asset. As such, a home equity loan can be a solution for when you’re in need of cash as a retiree. 

As you know, when it comes to retirement, it’s best to have a plan. This article will act as your guide through everything you need to know about using home equity for retirement income,  including the benefits of home equity and any possible home equity loan alternative you can use. 

Benefits of Home Equity for Retirement

Over the years, you’ve built a substantial amount of home equity. As you transition into the next phase of your life, it’s time to take advantage of those years of work to ensure a comfortable and secure future.

To that end, using home equity in retirement provides retirees with numerous benefits, such as:

  • You stay in your home – Instead of losing the family home, you can enjoy your retirement from the comfort of a familiar and loving space. 
  • You have an additional source of income – Whether you’re looking to pay off a credit card or cover personal debts and expenses, a home equity loan can provide you with additional retirement funds so you can make your way toward financial freedom. 
  • You may have tax benefits – Not all home equity loans are tax-deductible, but if the borrowed money is used to buy, build, or improve your home, the interest rate you pay may be eligible for a deduction. 

Ways to Access Home Equity for Retirement

Some of the most common ways to access home equity for retirement expenses include:

  • Taking out a reverse mortgage
  • Taking out a home equity loan
  • Taking out a home equity line of credit (HELOC)

Reverse Mortgage

As someone who is considering using home equity as retirement savings, you may have come across the term “reverse mortgage” at some point.  

A reverse mortgage is available to homeowners who are 62 years or older. As a homeowner, you can borrow against the equity of your home and receive funds as a line of credit, fixed monthly payment, or lump sum. With a reverse mortgage, borrowers are not required to make any loan payments.

Instead of paying the lender in installments, the lender uses your home equity to pay you. However, it’s still a loan, which means that if you decide to sell your house, you’ll have to repay the entire debt plus interest. However, it is also important to consider the pros and cons of reverse mortgages for retirement and the other alternatives to reverse mortgages.

Curious to know if you’re eligible for a reverse mortgage? A reverse mortgage comes with a lot of rules and stipulations, so always read the fine print before signing any documents. To be eligible, you must meet these requirements:

  • You need to be at least 62 years old. 
  • You need to be living in your home for the majority of the year. 
  • You need to have a low mortgage loan balance or own the home completely. 
  • You need to be able to afford your property taxes, home repairs, and insurance.
  • Your home has to meet the lender’s property standards.

Home Equity Loan

Many often consider a home equity loan to be a “second mortgage.” This type of loan allows a borrower to get a fixed-time loan from a lender based on the equity of the borrower’s home. As such, you can convert a percentage of your home equity into cash to use for a one-time expense. 

Once you’ve acquired the loan, you must start to pay the amount borrowed back immediately. Typically, home equity loans have a competitive interest rate.

If you’re considering a home equity loan for retirees, we’ve compiled a few pros and cons of home equity loans to help you learn more about what this type of loan entails:

  • You can borrow a sum up to 80-85% of your home’s equity.
  • The total amount you can borrow also depends on your credit score and monthly income. Therefore, if you have a low credit score, getting a home equity loan with bad credit might not be as favorable.
  • You have to start paying the loan off immediately because it’s a fixed-rate loan. 
  • A typical term for this kind of loan can be anything from 5 to 15 years. 

Home Equity Line of Credit 

A good way of understanding a HELOC is to think of it as a credit card. You have a set credit limit that you can borrow, which you can take out money against whenever you may need it. Like a credit card, you will need to make payments to pay back what you borrowed. 

Let’s break down the HELOC process into two phases:

  • Phase 1: Draw period – During the draw period, which is commonly 10 years, you can access a line of credit through a credit card, online transfer, or a check whenever you need it. The best part is that you aren’t obligated to repay any of the money during this phase.
  • Phase 2: Repayment period – As you begin repaying your debt, you won’t be able to access those funds anymore. When repaying, you’ll be repaying your entire debt, plus interest, which can take up to 20 years. 

When comparing a HELOC vs. home equity loan, HELOCs offer a bit more flexibility compared to home equity loans and can be used for anything you’d like. However, it’s recommended to use HELOCs for long-term expenses, such as your grandchild’s college tuition or medical bills. 

A downside to HELOCs is that the amount due during the repayment phase can shock many homeowners. Additionally, if you default on your loans, mortgage lenders could force you to sell your home.

Convert Your Equity into Cash with a Sale-Leaseback

A reverse mortgage, home equity loan, or home equity line of credit, are effective ways to receive extra retirement funds as a retiree. However, they come with their risks, as well, which can result in losing your home if you fall behind on repaying your loan. 

If you’re wary of a loan, but still interested in using home equity for retirement income, consider a sale-leaseback program.

A sale-leaseback program that allows you to sell your house and lease it back, all while converting your home equity into cash. Unlike home equity loans, HELOCs, cash out refinance, and reverse mortgages, a sale-leaseback model has no restrictions on how you can use your cash and lets you potentially collect appreciation on your home later. 

Key Takeaways

Do you plan on using home equity for retirement income? When you’re ready to hang up your hat and retire, you may need some extra monthly income to help fund it. If you are still unsure of alternative options to securing this specific loan after reading this article, consult a financial advisor to discuss your options.


  1. FTC Consumer Information. Home Equity Loans and Credit Lines. 
  2. Investopedia. A Guide for Home Equity Loans and HELOCs. 
Home Equity
Tom Burchnell
Written by Tom Burchnell
Director of Product Marketing

This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.