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Considering Tapping Your Home Equity? Compare Your Options First

Rising costs and expenses coupled with a fixed income can be a significant challenge as you age.

If savings, Social Security, and modest retirement income is proving insufficient, you may be considering the role your home could play in meeting daily living expenses or planning for a secure financial future. When it comes to your home, selling to downsize is one option. You might also consider finding someone to share your home.

There are also financial products and tools that can help unlock the equity you’ve built up over the years. Each option has its pros and cons, and they vary in feature options.

Earlier this year, NCOA asked senior homeowners about their understanding of home equity release products. The homeowners told us that, despite their home equity representing a majority of their overall retirement assets (from 60-80%), few understood home equity products, and most would be reluctant to use one. The research also revealed some negative bias against a reverse mortgage line of credit, based on the product name, and preconceived notions of the product.

Here’s a comparison of the most common home equity release products:

Home Equity Product Comparisons

Home Equity Lines of Credit (HELOCs) Reverse Mortgage Line of Credit (Home Equity Conversion Mortgages or HECM) Home Equity Loans
Borrowers have access to funds for a specified time period Borrowers have access to funds for no specified time period Borrowers have access to a specified lump sum up front for a specified time period
Must make minimum monthly payments No minimum payments required Must make specific set monthly payments
Lender can freeze or reduce the line of credit Lender cannot freeze or reduce the line of credit Lender cannot freeze or reduce the loan amount
Home subject to foreclosure if minimum payments, taxes, or insurance not paid, or borrower does not keep the home in good repair Home subject to foreclosure if taxes or insurance not paid, borrower does not keep the home in good repair, or does not live in the home as primary residence Home subject to foreclosure if minimum payments, taxes, or insurance not paid, or borrower does not keep the home in good repair
Loan balance must be paid back in full, even if borrower owes more than home is worth Borrowers or heirs never pay back more than the home’s fair market value when sold Loan balance must be paid in full, based on a fixed interest rate on a specific schedule
Fees and costs to obtain the HELOC can include closing costs Fees and costs to obtain the HECM can include closing costs, counseling fee, and mortgage insurance premiums Fees and costs to obtain the Home Equity Loan can include closing costs

If you’re looking for tools to unlock cash from your home to plan for the future, or to meet your current needs, here are a few tips to get started:

  • Download NCOA’s free booklet, Use Your Home to Stay at Home© (available in both English and Spanish).
  • Contact a Department of Housing and Urban Development (HUD) approved housing counselor, or other trusted financial advisor, with questions or to discuss options.
  • Shop around and compare quotes to assure the best value for the solution you’re seeking.
  • Take a free and confidential BenefitsCheckUp® to find out if you’re eligible for relevant property tax relief or other public benefit programs.

Don’t wait for an emergency. Plan now, so you don’t have to make your choice in a crisis. Getting educated about the many options available for accessing your home’s equity can help secure your future and maximize your resources for a long, healthy life!

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amy ford

About Amy Ford

Amy Ford is NCOA's Senior Director of Home Equity Initiatives and Social Accountability. She leads a team that provides education, counseling, and support across the country to older adults considering accessing their home equity.

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