On this page
Seniors can tap home equity for retirement income in six main ways: a cash-out refinance, a home equity line of credit (HELOC), a charitable gift annuity funded by the home, selling and downsizing, home sharing, or a reverse mortgage. Each option has different costs, eligibility rules and effects on what passes to heirs.
Check your refinance eligibility. Start here (Nov 8th, 2026)
Why many seniors leave home equity untapped
Most older homeowners do not borrow against their homes for retirement income. An Urban Institute study found that many older homeowners want to avoid debt. Others, the study found, face structural barriers to borrowing against home equity.
“I believe many people in their 70s and 80s look at it as welfare,” says Mary Russell, then broker/owner at Mortgage Results in Aptos, Calif. “They feel they won’t be able to leave anything for their kids, and their kids are against it, too, because it takes away from their inheritance. That’s not true.”
Check your refinance eligibility. Start here (Nov 8th, 2026)
Russell has worked with many people during their retirement years to use the equity in their homes. It all comes down to one fact. If they have equity in their home, they can use it to live a better life. They can also use it to pay for remodeling or a grandchild’s college or do anything else they want.
Many older homeowners already own their homes outright. In 2024, 54% of households where the person who owns or rents the home is 65 or older owned a home without a mortgage and 24% owned a home with one, according to Bureau of Labor Statistics Consumer Expenditure Surveys data.
Pros & cons of tapping home equity
The main trade-offs to weigh before tapping home equity:
- Pro: cash without selling. A cash-out refinance, HELOC or reverse mortgage lets you stay in the home while turning part of its value into cash.
- Pro: possible debt savings. Paying off higher-interest debt with home equity may lower your total monthly payments.
- Con: less left for heirs. Any borrowing or sale reduces the equity your family may inherit.
- Con: the home secures the debt. With a HELOC or cash-out refinance, falling behind on payments could put the home at risk.
- Con: ongoing costs. Loans carry closing costs and interest. In addition, reverse mortgage borrowers must keep paying property taxes, homeowners insurance and upkeep and live in the home as their principal residence.
Best options for accessing home equity
Here are a few options that seniors can use to access home equity:
Cash-out refinance
A cash-out refinance replaces your current mortgage with a larger loan and pays you the difference in cash at closing. If the home is paid off, the new loan is a first mortgage against it. Using the cash to pay off debts with higher interest rates or payments may improve monthly cash flow. However, the new loan adds closing costs and a monthly payment that has to fit a retirement budget.
Check today’s cash-out refinance rates. Start here (Nov 8th, 2026)
These refinances can also be good sources of funding for education for children or grandchildren. You can use the money for just about anything, including home improvements, investments or medical bills.
Home equity line of credit (HELOC)
A HELOC is a line of credit secured by your home. During the draw period you can borrow, repay and borrow again up to a limit based on your equity. Because the home is the collateral, falling behind on payments could cost you the home, the Consumer Financial Protection Bureau warns. To compare the two most common equity loans, see cash-out refinance vs. HELOC.
Check your home equity eligibility. Start here (Nov 8th, 2026)
Charitable gift annuity funded by your home
It’s another planning tool for turning real estate into lifetime income, Russell says. With a charitable gift annuity, you transfer property to a charity. In return, the charity agrees to pay you a fixed amount for life. Federal tax law also allows a charitable deduction for a gift of a remainder interest in a personal residence. That type of gift lets you keep living in the home during your lifetime. Payout rates and tax effects depend on the charity and your situation, so talk with a tax professional first.
Sell the home
This can give seniors a chance to downsize, rent or buy into a retirement community or long-term care community.
Home-share
Home sharing pairs an older homeowner with a screened housemate who pays rent, helps with chores, or both. Some nonprofits and local agencies run free matching programs that screen both sides before a match.
For instance, the New York Foundation for Senior Citizens has run a free Home Sharing Program in New York City. The program matches hosts and guests. At least one person in each match must be 60 or older, and the foundation’s social work staff screen every applicant.
Russell says that each retiree who is looking to increase their income should talk with their financial professionals and family members. Together, they can talk about options and what would be best for their situation, financially and emotionally.
Reverse mortgage
A reverse mortgage lets older homeowners borrow against their home equity with no required monthly mortgage payment. That lasts only as long as they live in the home as their principal residence and keep paying property taxes, homeowners insurance and upkeep. The most common type is the Home Equity Conversion Mortgage (HECM). The Federal Housing Administration (FHA) insures it, and it is available to homeowners 62 and older. Borrowers can receive HECM funds as a line of credit, monthly payments or a lump sum, according to the Consumer Financial Protection Bureau.
Russell works with many clients who use reverse mortgages. She believes many people are wary of them because of past bad press. She also notes that HUD has since added protections for non-borrowing spouses. They apply to HECMs with FHA case numbers assigned on or after August 4, 2014.
“In the past, people felt that the bank owns their house, and they will take it away from them,” she says. “And in the past, they used to. If one of the spouses died, the other was kicked out.”
HECM rules on spouses, counseling and loan amounts
Spousal protections are not automatic. For a HECM, a spouse who is not a borrower may qualify to remain without repaying the loan after the borrower dies. That protection is subject to HUD’s eligible non-borrowing spouse rules and continuing loan obligations. A spouse who does not qualify would need to satisfy the loan to keep the home. Every HECM borrower must also complete counseling with a HUD-approved counselor before getting the loan.
For a HECM, how much you can borrow depends on age, the interest rate and the home’s value. The age that counts is that of the youngest borrower or eligible non-borrowing spouse, whichever is younger. For FHA case numbers assigned in 2026, the HECM limit on home value is $1,249,125, according to HUD.
What seniors use reverse mortgage money for
Reverse mortgages can help seniors pay for their grandchildren’s education, travel the world, repair their home or get home healthcare. There are so many options when using a reverse mortgage, Russell adds.
Russell recalls one client, the 94-year-old mother of a friend. She used a reverse mortgage to pay for in-home nursing care so she could stay in her California home.
“Now, her daughters don’t have to bring mom into their homes, and everybody wins. That one did my heart good,” Russell says.
Home equity for seniors FAQ
Is money from a reverse mortgage taxable?
Generally no. The IRS treats reverse mortgage payments as loan proceeds, not income. Interest that builds up on the loan is not deductible until you actually pay it. Even then, it may not be deductible. A tax professional can confirm how it applies to you.
How much can a senior borrow with a reverse mortgage?
For a HECM, how much you can borrow depends on age, the interest rate and the home’s value. The age that counts is that of the youngest borrower or eligible non-borrowing spouse, whichever is younger. Older borrowers and higher-value homes generally qualify for more. For a HECM, the home value counted is capped at $1,249,125 for FHA case numbers assigned in 2026.
What happens to a reverse mortgage when the borrower dies?
For a HECM, the loan generally becomes due after the last borrower dies. An exception applies if an eligible non-borrowing spouse qualifies for a repayment deferral. A surviving co-borrower can remain while meeting the loan’s requirements. Heirs who want to keep the home can generally satisfy the HECM by paying the lesser of the outstanding balance or 95% of its appraised value. If they sell an underwater home, they should coordinate a qualifying sale with the servicer. Generally, the sale price must be at least 95% of appraised value, with net proceeds applied to the debt. FHA mortgage insurance covers the remaining shortfall.
What are a reverse mortgage borrower’s ongoing responsibilities?
HECM borrowers must pay property charges such as property taxes and homeowners insurance on time. They must keep the home in good repair and live in it as their principal residence. Missing these requirements could lead to foreclosure, according to the CFPB.
Comparing ways for seniors to use home equity
A cash-out refinance or HELOC keeps the home in your name but adds a monthly payment. A reverse mortgage has no required monthly mortgage payment. However, its balance grows over time and reduces the equity left for heirs. Selling, home sharing and charitable gifts trade some use or ownership of the home for cash or income. For more detail, read about reverse mortgages for seniors and home loans for senior citizens.
Check your refinance eligibility. Start here (Nov 8th, 2026)
