Tapping Home Equity in Retirement: The Options and the Risks

Substantially rewritten in 2026. The original version, published in 2017, described reverse mortgages without setting out their costs or risks. This version covers both, and the alternatives.

For many households, the house is the largest asset and the income is the smaller number. That gap is real, and there are several ways to close it.

They are not equivalent, they are not equally reversible, and the one most heavily marketed to older homeowners is the one that deserves the most scrutiny.

General information, not financial advice. Anything involving your home should be discussed with an independent adviser who is not selling you the product.

The four routes

Downsize. Sell, buy something smaller or cheaper, keep the difference. The simplest, the cheapest in fees, and the one most often dismissed for reasons that are emotional rather than financial — which is legitimate, and worth naming as what it is.

A home equity line of credit. Borrow against the house, draw as needed, repay with interest. Requires income to qualify and requires monthly payments. Cheapest borrowing if you can service it.

A home equity loan. A lump sum, fixed payments.

A reverse mortgage. Borrow against the house with no monthly payments; the balance grows and is repaid when you leave the home. Available from age 62 through the FHA-insured Home Equity Conversion Mortgage, and this is the one that requires the most care.

Reverse mortgages, properly explained

The mechanism is genuinely useful for some households and genuinely damaging for others, and the difference is knowable in advance.

What it does: you receive money — as a lump sum, a line of credit, monthly payments or a combination — and make no monthly repayments. Interest and fees are added to the balance, which grows over time.

What it costs. This is what the marketing omits. There are origination fees, mortgage insurance premiums both upfront and ongoing, closing costs and servicing fees. The balance compounds, so a loan taken at 65 can consume most of the home's value by 85.

What it does not remove. You remain responsible for property taxes, homeowner's insurance, and maintaining the property. Failing on any of these can trigger foreclosure, and this is the single most common way these loans go wrong. People take one because money is tight, and the tax bill is still due every year.

What happens when you leave. The loan becomes due when the last borrower dies, sells, or moves out for more than twelve consecutive months — including a move into long-term care. Heirs can repay the balance or sell the home; if the balance exceeds the value, the FHA insurance covers the difference and the lender cannot pursue the estate for more.

Who must be on the loan. If a spouse or partner is not a borrower, their position when the borrower dies is a serious question with real consequences. Protections exist for eligible non-borrowing spouses and they are conditional. Ask about this explicitly and get the answer in writing.

The questions to ask before signing

Ask them of the lender, and ask them again of someone who is not the lender.

• What are the total fees, in dollars, at closing?
• What will the balance be in five, ten and fifteen years, at the current rate?
• What is left for my heirs under those scenarios?
• What happens if I move into care for a year?
• What happens to my spouse or partner if I die first?
• What are my obligations, and what happens if I cannot meet them?
• Would downsizing achieve the same thing for less?

HUD-approved counselling is required before an FHA reverse mortgage, and it is genuinely useful. Treat it as the substantive conversation, not the paperwork step.

Warning signs

This product attracts aggressive selling, and the pressure tactics are consistent.

Anyone suggesting you use the proceeds to buy an investment, an annuity or an insurance product. This is a recognised abuse pattern and in many cases unlawful.

Anyone who will not put projections in writing.

Urgency. There is no version of this decision that must be made this week.

A contractor offering one to fund repairs. A known scheme, and it targets exactly this group.

Advice from someone earning commission on the product. Not disqualifying, and a reason to get a second opinion from someone who is not.

The alternatives worth pricing first

Downsizing frequently produces more money than a reverse mortgage and costs a fraction in fees.

Renting a room, where circumstances allow.

State and local property tax relief for older homeowners. Widely available, widely unclaimed, and free money. Check with your county assessor.

Benefits you may not be claiming. Programmes exist that go unused because nobody applies. A benefits check-up costs nothing.

A home equity line of credit, if you can service the payments — considerably cheaper than a reverse mortgage.

The framing worth holding

A reverse mortgage converts an asset your heirs would inherit into income you can use now. For a household that needs the income and does not need to leave the house to anyone, that can be exactly the right trade.

For a household that has not priced downsizing, has not checked its tax relief, and is being pushed by someone earning a commission, it usually is not.

The difference is one honest afternoon with someone who is not selling anything.

Rewritten in 2026. The original cited 2017 aggregate equity figures and described reverse mortgage payout structures without covering fees, compounding, the tax and insurance obligations, non-borrowing spouse issues, or the alternatives.

For additional public information on investor education and financial planning, see Investor.gov.