If you are a retired homeowner, it could be good that your property is far more valuable than you paid for it, and that fairness could be a lifeline.
In 1995, the typical home cost $114,600. According to the National Association of Realtors, the median selling price today is around $400,000.
Home Equity’s Line of Credit (HELOC) is one way to take some of its value and turn it into cash.
But is HELOC the right solution during retirement? Let’s take a look at some scenarios.
Scenario 1: I’m worried about the economy
Recent headlines have given retirees plenty of fuel for end-level fears about their financial future. From concerns about the stability of the Social Security Agency to questions about the ripple effects of tariffs and global market volatility for 401(k), it is understandable to look for ways to ease the finances.
HELOC can look like an attractive backup plan for accessing cash without tapping on your retirement account during a recession. In theory, you could buy another decade to wait for an economic roller coaster until you’re in a better position to pay your principal balance. However, this strategy poses great risks.
“To assume debt during retirement, you need to carefully consider your expected income and costs,” says Dr. Lori Trawinski, PhD and Senior Director of the AARP Institute of Public Policy in Washington, DC.
“Aged borrowers may face increased health costs, spousal death, or other circumstances that reduce the available funds to pay their debt.”
It also assumes that using HELOC as a hedge against a market slump will not cause the economy to deteriorate. If so, you could still be in a volatile financial situation – your home is on the line only now.
“HELOC may seem like an easy way to avoid causing certain tax standards or tapping on a retirement account. But in reality, it can add complexity and stress.”
“Ideally, retirees should have a well-thought-out income plan with a diverse portfolio that could potentially migrate the market without the need for additional debt. It is important to plan a robust strategy of current assets and cash flow.”
Scenario 2: I want “fun money” in the golden age
After years of responsibly paying your mortgage, you may wonder whether withdrawing cash from the capital of your home will help you enjoy higher quality. After all, who wouldn’t want to ruin his grandchildren or splurge on a memorable holiday?
But even if HELOC initially seems like an affordable way to access extra cash, it’s not worth putting your home at risk. This risk is even more pronounced in uncertain economic situations.
“When interest rates rise and inflation rises, consumers can have difficulty paying,” says Trawinski of Aarp. “Most HELOCs have a variety of interest rates, so the minimum payments will result in increased, which can be particularly at risk in rising interest rate environments.”
If you haven’t read the fine print, Heloc’s affordable prices can also be a bit tricky.
During the 10-year draw period for HELOC, borrowers are usually only required to pay interest. However, when you enter the repayment period (usually lasts for 20 years), interest and the principal will be paid.
“What seemed like an affordable loan would soon become much more expensive and add unnecessary burdens,” Lehman says.
If you can’t pay, you could lose your home.
Scenario 3: You are paying for improving your home
Home Improvement Project is one of the best reasons to obtain HELOC.
Ideally, this project will increase the value of your home, such as raising new roof financing or replacing old siding. That way you are reinvesting cash into your home equity. According to IRS guidelines, there are also potential tax benefits.
Whether your project doesn’t directly increase the value of your home, or, for example, adding ramps or stairs lifts for mobility, it may be worth getting Helock if the changes can make your home more livable and ageing.
Payments should not be at the top of your budget as they should prepare even if the HELOC variable rate rises. As long as you can purchase potentially large payments, HELOC can be a robust funding solution.
Scenario 4: You need help covering your living expenses
This is difficult. If you need a bridge to cover temporary financial set-offs like medical expenses, and if you know you’re visible, HELOC may work for you. But if paying bills is a consistent struggle, adding them to debt can make things worse in the long run.
In this case, you may consider a reverse mortgage. A Home Equity Conversion Mortgage, or HECM, is a reverse mortgage supported by the Federal Housing Administration (FHA). This allows homeowners over the age of 62 to convert some of their home capital into cash without paying monthly loans. You will receive funds based on the value of your home and you can use them towards your living expenses.
They will likely not be able to maintain the home unless the heirs are unable to pay back the HECM, as they will need to pay off the loan when the house is sold or the borrower dies. However, as long as you pay your property tax, you are permitted to live there indefinitely.
The bottom line of HELOCS when you are retiring
HELOCS is a great financial tool in the right circumstances, for the right reasons. Before signing the dotted line, consider your finances and retirement goals, and how to support (or interfere with) your ability to achieve them.
Taylor Getler writes for Nald Wallet. Email: tgetler@nerdwallet.com.
Articles where you retire and need cash – Is Helock the answer? It originally appeared in Nerdwallet.
Original issue: May 12, 2025, 2:12pm EDT
