Using Home Equity for Retirement: A Guide

For most homeowners in the U.S., their home is their greatest asset and is a tool that can be used for its equity. In fact, many Americans are interested in using home equity as retirement income. The trouble is that it’s difficult to know which home equity tricks and strategies work best for you, especially since home equity is a limited resource.

Not sure where to start? Read on to learn how your home’s equity can add to your retirement savings.

What Is Equity?

In a nutshell, equity is the difference between how much your home is worth and how much you owe on your mortgage plus any other liens. For example, if you take out a loan for a $400,000 property and pay off $200,000 of that loan, you have 50% equity in the property.

You build equity as you pay a loan. What’s more, equity can sometimes appreciate if your property’s market value goes up because of factors like the condition of the housing market.

Equity can be an excellent tool for building a nest egg if your primary income source dries up or you don’t have retirement accounts. In your golden years, you may need to dip into your property’s equity to:

  • Supplement your income or Social Security month-to-month so you don’t have to go back to work
  • Fund purchases you did not account for in your original retirement planning, like completing home renovations, paying credit cards, or going back to school
  • Pay for emergencies, like new healthcare bills

In short, you can use your equity to better accommodate your financial situation or reach your goals. You just need to know how to access it!

How Can You Use Equity for Retirement?

With proper financial planning, you can use equity for your retirement in several ways.

1. Cash-Out Refinance

In a cash-out refinance, you take out a loan worth more than your loan balance, use it to pay your mortgage loan, and then pocket the difference. You now have a new loan payment to a new lender along with new terms.

Depending on how much equity your home has built up, you could get hundreds of thousands of dollars through a cash-out refinance. Keep in mind that you need to pay closing costs on the new loan, and your cash-out refinance loan may have higher interest rates or other undesirable terms you'll need to adhere to for the loan's duration.

2. Selling and Downsizing

A wiser strategy may be selling your property and downsizing to a smaller, more manageable primary residence throughout your retirement years. By selling a property you own and have built up equity in for decades, you could potentially walk away with money you can use to make a down payment on a smaller, cheaper property or even buy your new home outright.

Such a move will make managing your mortgage and your home much easier in the coming decades. Depending on your retirement cash flow, downsizing may even set you up for financial stability for many years. Selling or downsizing are popular strategies for those who have limited mobility.

3. Reverse Mortgage

Another option is a reverse mortgage, also known as a home equity conversion mortgage. This home loan is available to homeowners 62 and older and lets you trade home equity for cash while using the home as collateral. There are no monthly payment obligations outside of taxes and insurance.

On the downside, you won't be able to sell your property or move, but you will receive cash in fixed monthly payments or through a credit line that you can draw on when needed. In this way, it's somewhat similar to a home equity line of credit (HELOC) or home equity loan.

4. Home Equity Loan or Line of Credit

A home equity loan uses your home’s equity as collateral. Think of it as the ability to borrow money based on how much equity your property has.

A home equity line of credit is the same thing, but it acts as a line of credit you draw from and pay down as you need it rather than a big lump sum you get all at once. In either case, home equity loans may work for homeowners who have lots of money tied up in their properties. But you may need a high credit score to qualify, plus meet other requirements.

5. Co-Own With Balance

If no other options are right for your needs, you may be able to take advantage of your home’s equity in retirement with Balance. If approved for Balance's homeownership program, your mortgage loan will be replaced with an equity investment. Your mortgage would be paid off, and you'll make a monthly payment to Balance that covers your occupancy of the home and your share of the insurance and taxes. As a co-investor, Balance pays for its share of the home's monthly expenses as well.

In essence, Balance allows homeowners to pay off their mortgage balance and access funds by selling a portion of their home equity instead of taking on additional debt. You may also receive a lump sum while reserving the option for you to buy us out of that equity later. In the meantime, you can use the money from your equity for whatever you like, including making contributions to retirement funds.

Contact Balance Today

When you get in touch with Balance, you'll learn more about how home co-ownership and equity investments can aid your personal finances. The lump sum we pay for your home's equity could be just what you need to retire in comfort. Contact us today to learn more.


Equity Definition: What it is, How It Works and How to Calculate It | Investopedia

Cash-Out Refinancing Explained: How It Works and When to Do It | Investopedia

What is a reverse mortgage? | Consumer Financial Protection Bureau

How a Home Equity Loan Works, Rates, Requirements & Calculator | Investopedia