For many retirees, home equity makes up a significant portion of their overall wealth, often accounting for 70% or more of their assets, not including Social Security or pensions. When a health crisis or financial pressure arises, tapping into that equity can become necessary. But the key is to do it strategically.

There are a few main ways to access home equity in retirement, each with its own pros and cons.

Reverse Mortgage

A reverse mortgage is a well-regulated loan product designed for homeowners aged 62 and older. It allows borrowers to convert a portion of their home equity into tax-free funds, without taking on a monthly mortgage payment. Instead, the loan is repaid only when the last borrower moves out permanently or passes away.

The amount of money available through a reverse mortgage depends on the age of the borrower(s) and the amount of equity in the home. The older the borrower, the more they may qualify to receive. Funds can be accessed in a lump sum, as monthly installments, or through a growing line of credit. There’s even a reverse mortgage for purchase option for those looking to buy a new home and eliminate monthly payments altogether.

Reverse mortgages are a great option for those with limited retirement income who want to age in place, as well as those who want to create a buffer to protect investment accounts from market volatility.

Home Equity Loan (HELOC)

Another option is a traditional home equity loan or line of credit (HELOC). These loans also allow homeowners to borrow against their home equity, but unlike a reverse mortgage, they come with monthly payments. That can be a serious concern for retirees living on fixed incomes.

Before choosing this route, it’s important to consider your long-term financial stability. If your health changes or your income dips unexpectedly, a HELOC could become a burden—and in the worst case, failure to make the required payments could result in foreclosure.

Downsizing

Selling the home and downsizing is another common strategy. If the homeowner has substantial equity, the proceeds from the sale can be used to rent or buy a more affordable home. For some, this route can provide a simpler lifestyle and potentially free up cash for other needs.

However, downsizing isn’t always the best option—especially for retirees with health concerns or those strongly rooted in their current community. The cost of moving, plus the emotional toll of leaving a long-time home, can outweigh the financial benefits. For homeowners who want to downsize without giving up financial flexibility, the reverse mortgage for purchase option may offer a strong alternative—allowing them to buy a new home and avoid future mortgage payments.

Final Thoughts

Tapping into your home equity should be part of a broader retirement strategy—not a last-minute decision made under stress. Whether you’re considering a reverse mortgage, a home equity loan, or selling and downsizing, it’s wise to talk with both a financial advisor and a reputable reverse mortgage specialist. Together, they can help you decide which option fits your goals, lifestyle, and long-term financial health.

Jan Jordan and Kelsey Jorck are Reverse Mortgage Specialists serving Fort Collins, Loveland, Greeley, Longmont, Dacono, Erie, Boulder, and surrounding areas across Colorado’s Front Range.  Click here to contact them and learn if reverse mortgage is right for you.