Homeowners preparing for retirement could be sitting on a sizable, untapped financial asset—your home equity. If you've been paying off your mortgage for a while, chances are you could be using that home equity for your retirement income. Before tapping into home equity, though, it's crucial to understand if pulling equity from your home when you're retired is the right option for you and, if so, the best ways to use it.
A cash-out refinance—like typical mortgage refinancing—involves a new interest rate and mortgage term. However, with a cash-out refinance, your new loan is larger than your mortgage balance, so you get to pocket the difference. You can secure a cash-out refinance by applying for a new mortgage with a higher loan amount, then paying off the rest of your current mortgage with the new one. The amount that remains can be put toward your retirement goals.
Cash-out refinancing is a great option if you've been paying off your mortgage for years and can afford a higher monthly payment and if current interest rates are lower than the ones you're currently paying. If interest rates are higher or if you don't want to add more debt, temporarily lose home equity, or worry that you can't afford a larger monthly payment, you're probably better off skipping a cash-out refinance.
If you're an empty-nester with more space at home than you can or want to take care of, you might consider downsizing rather than aging-in-place. This involves selling your current home and moving to a smaller home, apartment, or senior living community. You can put the profits from your home sale toward your more immediate financial needs in retirement.
While downsizing often lightens your monthly payments, it's possible that you could run into inflation, which would lessen the amount of money you gain from your home sale. In addition, housing shortages and higher costs of living could make it difficult to find a new living community you can afford. If you're considering downsizing, talk to a financial planner before moving forward with a sale to evaluate the state of the housing market and determine if this option would financially benefit you.
Home equity sharing agreements are another way to use home equity during retirement without taking on an additional loan. In this process, you'll make an agreement with a third party, such as an investor, and they'll give you cash based on the current value of your home. In exchange, you'll share a portion of your home's future change in value with them. At the end of a given term or when you decide to sell your home, you'll pay the agreed upon amount.
This is perfect for retirees who don't want to worry about adding another monthly payment to their budget. However, an equity sharing agreement might cost more than a loan, especially if your home appreciates significantly over the term. Learn how Unison's equity sharing agreement works for retirees.
A home equity line of credit is a flexible, revolving line of credit that uses your home as collateral. One advantage of a HELOC is that you'll have more control over how much money you take out at a single time, since your money is available on an as-needed basis—and these funds can be used for anything you may need during retirement. The process of securing a HELOC starts with applying through a lender, who will ultimately decide on a credit limit based on the equity you've built in your home.
It's possible that interest rates could increase over the life of the HELOC because the rates are variable. and if your home value decreases, there's a potential for negative home equity. For retirees that don't have a steady stream of income, adjusting monthly payments could be too difficult. Because your home functions as collateral, failing to meet payment requirements could put your home at risk of foreclosure.
Home equity loans offer a lump sum of cash to be paid back over time (with interest). Home equity loans, also called closed end second mortgages, are taken out in addition to your first mortgage using your home as collateral. In order to secure a home equity loan, you'll start by getting your home equity appraised by a lender.
Home equity loans for seniors are a great way to access the home equity you've built up over the years. A major plus of home equity loans is their fixed interest rate that's usually lower than other loan types. If you need to pay for a large one-time payment without drastically altering your monthly budget, this could be the right choice for you. However, the process involves taking on an additional monthly payment and more debt, which could be a financial burden in the long run. You'll also risk foreclosure on your home if you can't make payments on time.
Retirees that want an option for using home equity that's tailored specifically to their age group may want to consider a reverse mortgage. This senior equity loan is only open to homeowners ages 62 and older who own significant home equity. With a reverse mortgage, a lender converts your home equity into cash and pays it out to you in monthly installments, as opposed to you paying the lender (as with a traditional mortgage). After your home is appraised, you'll receive a disbursed amount of money based on your home equity, which is then repaid when you sell your home or pass away.
Not only does a reverse mortgage give you additional cash flow, but it allows you to continue living in and maintaining ownership of your current property. It's important to remember, though, that your home equity may decrease as you accrue interest, and you could still lose your home to foreclosure should you default on your reverse mortgage.
We provide seniors with a straightforward, stress-free process. You'll receive up to 15% of your home’s current value in cash, in exchange for a percentage of your home’s change in value over time. You can use that cash for any financial assistance you need during retirement. During the 30-year term, you can choose to buy Unison out or settle the agreement upon the sale of your home. Should your home value increase, Unison will share in the profits. If your home value should decrease, we'll typically share in the loss.
The Equity Sharing Home Loan combines features of a traditional home equity loan with aspects of Unison’s pioneering equity sharing agreement. It is a mortgage with a ten-year term that allows borrowers to access the equity in their home at a low, below-market interest rate for second mortgages, which is moderately offset by a percentage of future appreciation of the house's value. This loan also features interest-only payments, with partially-deferred interest, leading to a lower monthly obligation for the homeowner.
Either a) after ten years, b) when you sell your home, or c) if you choose to prepay, the net appreciation (if any) will be determined. The loan is negative amortizing, so you will owe the principal amount borrowed, the agreed-upon percentage of the home’s appreciation, as well as any deferred interest. Note that unlike Unison’s equity sharing agreement, Unison does not share in any depreciation in your home’s value.
If you’d like to learn more about Unison’s offerings, and see whether tapping into your equity with either the equity sharing agreement or the equity sharing home loan might be a good fit for you, learn more today.
*Based on an internal analysis and review through July 2024 of interest rates for second-lien home equity loans.
The content on this page provides general consumer information. It is not legal or financial advice. Unison has provided these links for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of the other websites.
- Ways to Use Home Equity in Retirement
- Should You Use Home Equity in Retirement?
- Using Unison’s Equity Sharing Agreement or Equity Sharing Home Loan as Extra Income for Seniors
Ways to use Home Equity in Retirement
While home equity does not count as retirement savings, you can leverage it as extra cash flow if you need additional income. Learn about the different options for tapping into home equity while retired below.Cash-Out Refinance
A cash-out refinance—like typical mortgage refinancing—involves a new interest rate and mortgage term. However, with a cash-out refinance, your new loan is larger than your mortgage balance, so you get to pocket the difference. You can secure a cash-out refinance by applying for a new mortgage with a higher loan amount, then paying off the rest of your current mortgage with the new one. The amount that remains can be put toward your retirement goals.
Cash-out refinancing is a great option if you've been paying off your mortgage for years and can afford a higher monthly payment and if current interest rates are lower than the ones you're currently paying. If interest rates are higher or if you don't want to add more debt, temporarily lose home equity, or worry that you can't afford a larger monthly payment, you're probably better off skipping a cash-out refinance.
Downsizing
If you're an empty-nester with more space at home than you can or want to take care of, you might consider downsizing rather than aging-in-place. This involves selling your current home and moving to a smaller home, apartment, or senior living community. You can put the profits from your home sale toward your more immediate financial needs in retirement.
While downsizing often lightens your monthly payments, it's possible that you could run into inflation, which would lessen the amount of money you gain from your home sale. In addition, housing shortages and higher costs of living could make it difficult to find a new living community you can afford. If you're considering downsizing, talk to a financial planner before moving forward with a sale to evaluate the state of the housing market and determine if this option would financially benefit you.
Equity Sharing Agreement
Home equity sharing agreements are another way to use home equity during retirement without taking on an additional loan. In this process, you'll make an agreement with a third party, such as an investor, and they'll give you cash based on the current value of your home. In exchange, you'll share a portion of your home's future change in value with them. At the end of a given term or when you decide to sell your home, you'll pay the agreed upon amount.
This is perfect for retirees who don't want to worry about adding another monthly payment to their budget. However, an equity sharing agreement might cost more than a loan, especially if your home appreciates significantly over the term. Learn how Unison's equity sharing agreement works for retirees.
Home Equity Line of Credit (HELOC)
A home equity line of credit is a flexible, revolving line of credit that uses your home as collateral. One advantage of a HELOC is that you'll have more control over how much money you take out at a single time, since your money is available on an as-needed basis—and these funds can be used for anything you may need during retirement. The process of securing a HELOC starts with applying through a lender, who will ultimately decide on a credit limit based on the equity you've built in your home.
It's possible that interest rates could increase over the life of the HELOC because the rates are variable. and if your home value decreases, there's a potential for negative home equity. For retirees that don't have a steady stream of income, adjusting monthly payments could be too difficult. Because your home functions as collateral, failing to meet payment requirements could put your home at risk of foreclosure.
Home Equity Loan
Home equity loans offer a lump sum of cash to be paid back over time (with interest). Home equity loans, also called closed end second mortgages, are taken out in addition to your first mortgage using your home as collateral. In order to secure a home equity loan, you'll start by getting your home equity appraised by a lender.
Home equity loans for seniors are a great way to access the home equity you've built up over the years. A major plus of home equity loans is their fixed interest rate that's usually lower than other loan types. If you need to pay for a large one-time payment without drastically altering your monthly budget, this could be the right choice for you. However, the process involves taking on an additional monthly payment and more debt, which could be a financial burden in the long run. You'll also risk foreclosure on your home if you can't make payments on time.
Reverse Mortgage
Retirees that want an option for using home equity that's tailored specifically to their age group may want to consider a reverse mortgage. This senior equity loan is only open to homeowners ages 62 and older who own significant home equity. With a reverse mortgage, a lender converts your home equity into cash and pays it out to you in monthly installments, as opposed to you paying the lender (as with a traditional mortgage). After your home is appraised, you'll receive a disbursed amount of money based on your home equity, which is then repaid when you sell your home or pass away.
Not only does a reverse mortgage give you additional cash flow, but it allows you to continue living in and maintaining ownership of your current property. It's important to remember, though, that your home equity may decrease as you accrue interest, and you could still lose your home to foreclosure should you default on your reverse mortgage.
Should You Use Home Equity in Retirement?
Whether you should or should not use home equity in retirement is heavily dependent on your financial situation and available budget. It's best to consult a financial advisor and assess your current situation before deciding to tap into your home equity, but here are a few guidelines to get you started.When Tapping into Home Equity Is a Good Idea
- You're funding home improvements
- You're fielding unexpected emergency expenses
- You're paying off high-interest debt
- You're covering college tuition costs for children or grandchildren
When Tapping into Home Equity Is a Bad Idea
- You have a limited budget or significant debt
- You don't have a specific purpose in mind for the money
- You're planning to sell your home in the near future
- You wish to leave your home to family in your will
Using Unison’s Equity Sharing Agreement as Extra Income for Seniors
Unison's equity sharing agreement helps retirees tap into their home's equity without the burden of added debt, interest, or monthly payments.We provide seniors with a straightforward, stress-free process. You'll receive up to 15% of your home’s current value in cash, in exchange for a percentage of your home’s change in value over time. You can use that cash for any financial assistance you need during retirement. During the 30-year term, you can choose to buy Unison out or settle the agreement upon the sale of your home. Should your home value increase, Unison will share in the profits. If your home value should decrease, we'll typically share in the loss.
Unison’s Equity Sharing Home Loan–an Innovative New Offering
The Equity Sharing Home Loan combines features of a traditional home equity loan with aspects of Unison’s pioneering equity sharing agreement. It is a mortgage with a ten-year term that allows borrowers to access the equity in their home at a low, below-market interest rate for second mortgages, which is moderately offset by a percentage of future appreciation of the house's value. This loan also features interest-only payments, with partially-deferred interest, leading to a lower monthly obligation for the homeowner.
Either a) after ten years, b) when you sell your home, or c) if you choose to prepay, the net appreciation (if any) will be determined. The loan is negative amortizing, so you will owe the principal amount borrowed, the agreed-upon percentage of the home’s appreciation, as well as any deferred interest. Note that unlike Unison’s equity sharing agreement, Unison does not share in any depreciation in your home’s value.
If you’d like to learn more about Unison’s offerings, and see whether tapping into your equity with either the equity sharing agreement or the equity sharing home loan might be a good fit for you, learn more today.
*Based on an internal analysis and review through July 2024 of interest rates for second-lien home equity loans.
The content on this page provides general consumer information. It is not legal or financial advice. Unison has provided these links for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of the other websites.
