This article is part of the Retirement Financial Life Equations (RFLE) series. It was initially published in September 2018, but was updated in March 2026.
Owning a house is a great thing. Mostly because we all need a place to live, and if you’re fortunate enough to own your own home, you’re truly blessed.
Among developed countries, a relatively large percentage of people do own their homes. The most recent statistics for the U.S. put homeownership at around 66% as of late 2025—essentially unchanged from when I wrote this article in 2018, though it dipped to 63.7% during the 2020 pandemic before recovering. This puts us at roughly 42nd in the world, with Romania still leading at over 95% homeownership. What has changed dramatically, however, is home values themselves.
Home equity—the value in your home not obligated to a mortgage lender because you’ve paid it off or because the house has increased in value—is a significant resource if used wisely, particularly in retirement. And for many retirees today, that equity has grown substantially due to the housing boom of 2020-2024.
Home equity has risen dramatically since I first wrote this article in 2018. According to the Federal Reserve, total homeowner equity in the United States increased from approximately $14.44 trillion in 2017 to over $32 trillion in 2025—more than doubling in less than a decade. This extraordinary growth was driven by the pandemic-era housing boom, when historically low mortgage rates (briefly under 3% in 2020-2021) combined with limited inventory and remote work migration patterns to drive unprecedented price appreciation. Many homeowners who were “house rich but cash poor” in 2018 now find themselves sitting on equity windfalls they never anticipated.
Let’s make it more “personal.” The median home value in the United States has risen from approximately $240,000 in 2018 to roughly $420,000 in late 2025—a 75% increase in seven years. For a homeowner who purchased in 2015 or earlier and has been steadily paying down their mortgage, this represents an enormous equity accumulation that has transformed their balance sheets.
According to recent Federal Reserve data, home equity remains a particularly important part of total net worth for lower-income, older households. These families may not have much, but much of what they do have is in the equity in their homes. Federal Reserve statistics show that for households in the bottom 50% of income distribution aged 65+, home equity represents approximately 60-70% of total net worth. In contrast, wealthier families have a decreasing percentage of net worth in home equity—perhaps 30-40% for those in the top 10%. This points out the significant role that home equity plays in the financial well-being of lower-to-middle-income retirees, though it can play an important part for wealthier households as well.
Current data from the U.S. Census Bureau shows that the median home equity for persons age 65 and older is now approximately $250,000 (up from $130,000 in 2013), while median net worth for this age group has risen to approximately $410,000. This suggests that home equity still accounts for roughly 60% of the average retiree’s net worth—essentially unchanged from 2013 despite the dramatic nominal increases. Most of the remainder is in various types of savings, both retirement and non-retirement accounts.
Having lived through this housing boom while in retirement, I’ve watched my own home equity grow substantially—appreciation I never anticipated when we purchased our home years ago. This has given us more financial flexibility than I projected when writing my original 2018 article, though I’ve been cautious about viewing this appreciation as permanent or tapping it unnecessarily. As we’ll discuss, home equity should be treated as a strategic reserve rather than an ATM.
Here are several ways home equity benefits you in retirement:
Home equity adds financial margin
Having equity in your home adds to your net worth and gives you additional financial margin, especially if your house is paid for (which maximizes equity). It isn’t the same margin as a savings account, as real estate equity is generally “illiquid,” meaning you can’t easily convert your equity into cash. You would have to sell the house or take out a loan against it, which we’ll look at later.
If you manage to pay off your house before you retire, you’ll have additional money to put toward other purposes, such as additional saving or giving. If you’re behind in saving for retirement, you could use the money you were sending the mortgage company to add to your IRA instead.
If you’re in retirement with a paid-for house, you’ll gain margin in your expenses as you’ll need less income to cover your housing expenses. They don’t go away completely—you still have to pay taxes, insurance, maintenance, and utilities—but eliminating the mortgage payment typically reduces housing costs by 40-60%, creating substantial monthly cash flow improvement.
After seven years of retirement with a paid-for house, I can confirm this margin is real and valuable. Not having a mortgage payment means we need roughly $2,000 less monthly income to maintain our lifestyle—$24,000 annually. That translates to needing $600,000 less in retirement savings (using a 4% withdrawal rate) or being able to withdraw far less from our portfolio, extending its sustainability dramatically. This margin also allows us to give more generously and weather unexpected expenses without financial stress.
Set up an equity line of credit for particular purposes
I was a little hesitant listing this one when I first wrote this article in 2018, and I remain cautious about it in 2025, but it is undoubtedly one of the potential benefits. I say that because if you put a home equity line of credit (HELOC) on your home, you may be tempted to borrow against it for frivolous things and find yourself with a large mortgage again.
The HELOC environment has changed dramatically since 2018. When I first wrote this article, HELOC rates were around 5-6%. They spiked to 8-10% during 2022-2024 as the Federal Reserve raised rates to combat inflation, though they’ve moderated somewhat to 7-9% in late 2025. This makes HELOCs considerably more expensive than they were during the 2010s, which should give retirees additional pause before tapping home equity through this mechanism.
I have a HELOC on my own home, which is paid for, against about 30% of the equity. I only use it for special purposes and pay it back quickly. For example, I used it to fund the purchase of a small home to rent to my daughter with the understanding that she was going to buy it as soon as she was able. When she closed on the purchase, I immediately paid off the HELOC.
I can go for months or years and never borrow from it again. However, if I needed a large sum of money quickly and for some reason did not want to take it from savings, the HELOC is an excellent source of funds—though now at higher interest rates than when I first set it up. (I especially like the fact that I can make interest-only payments on it when I am using the money.) But I’m far more cautious about using it now with rates in the 7-9% range than I was when rates were 4-5%.
One important note: Many banks tightened HELOC availability during the 2020 pandemic and again during the 2022-2023 period of banking stress. If you want a HELOC as a financial safety net, it’s better to establish it before you need it, as banks may freeze or reduce credit lines during economic uncertainty. But be disciplined—just because you have access to credit doesn’t mean you should use it casually.
Tap the equity to lower your housing expense in retirement
If you’re getting close to retirement and still have a large mortgage payment, one strategy is to downsize, especially if you have a lot more house than you need. If you have substantial equity built up, after you pay off your current mortgage, you can use the equity left over to buy a smaller house for cash.
Not only will that strategy eliminate your mortgage payment, but it may result in lower costs in other areas if you move to a smaller house with lower taxes, insurance, utilities, and maintenance bills.
The mathematics of downsizing have become even more attractive since 2018 due to dramatic home price appreciation. Consider this example: A couple purchased a home in 2010 for $300,000 with a $240,000 mortgage. By 2025, the home is worth $525,000 and they owe $120,000 on the mortgage (equity: $405,000). They downsize to a $350,000 home in a lower-cost area, paying cash after closing costs. They eliminate their $1,200 monthly mortgage payment, reduce property taxes by $200/month, cut utilities and maintenance by $150/month—total monthly savings of $1,550 or $18,600 annually. Plus they freed up $55,000 in additional cash (after buying the smaller home) that can strengthen their emergency fund or investment portfolio.
I’ve watched several friends and fellow retirees successfully execute this strategy over the past few years. Those who downsized during 2019-2021, before housing prices peaked, captured maximum equity and secured smaller homes before prices rose. Those who waited until 2024-2025 still benefited from downsizing savings but found smaller homes had also appreciated significantly, reducing the net cash freed up from the transaction.
One caution: The transaction costs of selling and buying (realtor commissions, closing costs, moving expenses) can total 8-10% of home value. Make sure the long-term financial benefits and lifestyle improvements justify these substantial upfront costs.
Leverage equity to create a supplemental income stream in retirement
A lot of retirees may be “equity rich and savings poor,” meaning they have more home equity than retirement savings. If that’s the case and you want to stay in your current home in retirement, there are a couple of ways to access the equity for additional income.
Home Equity Loans
Home equity loans come in different forms, but typically as a home equity line of credit (HELOC) or a second mortgage. With the former, you just borrow money as you need it and then pay the interest until you pay it back. For HELOCs, the interest rate usually varies with the current market. As with any loan, the more you borrow, the more interest you pay. With a second mortgage, which could have either a fixed or adjustable rate, you could take the money as a lump sum, put it in a savings account, and use it as you need it. Meanwhile, you’d have to make regular payments based on the amortization schedule, usually between 5 and 15 years.
The big drawback of both of these as income options is that they become an additional expense. In the case of a HELOC, you have to pay interest at a minimum, and with a second mortgage, you have a principal and interest payment to make. And with current interest rates in the 7-9% range for HELOCs and 8-10% for home equity loans (as of late 2025), these costs can be substantial—far higher than when I wrote this article in 2018 when rates were 5-6%.
This is where a third option comes in: the reverse mortgage.
Reverse Mortgages
In a previous article, I mentioned using a reverse mortgage as a source of retirement income when all others have been exhausted. I recommend that it only be used as a last resort because I think it’s better to “keep your equity powder dry” for a time later in life when you may need it for assisted living or long-term care expenses.
However, if it’s your only option to ensure that you can retire with dignity, then it can be an excellent source of income that doesn’t require you to sell your house or move. The reverse mortgage landscape has evolved considerably since I first wrote about them in 2018.
They are complex. Reverse mortgages are relatively complex financial arrangements, and they’ve had a checkered reputation historically. However, due to regulatory changes implemented after the 2008 financial crisis and continued reforms through the 2010s and 2020s, they’ve become more regulated and consumer-protective. A reverse mortgage lets you generate income from the equity in your home, and it’s virtually guaranteed for as long as you live in your home. It works just as it sounds—like a mortgage in reverse. You “borrow” a certain amount up to regulatory limits, and the equity is given to you as a lump sum or as regular payments. You’re essentially borrowing against your home with no need to pay it back until the house is sold, which can happen before you die or after.
Recent changes to reverse mortgages: Since 2018, several important changes have affected reverse mortgages:
- Lower lending limits: The maximum home value that can be used to calculate a reverse mortgage (the “lending limit”) dropped from $765,600 in 2018 to $1,149,825 in 2025—increasing with home values but not proportionally. This means homeowners with very expensive homes can’t access as much equity percentage-wise as before.
- Financial assessment requirements: Since 2015, lenders must conduct financial assessments to ensure borrowers can afford ongoing property taxes, insurance, and maintenance. This prevents the foreclosures that plagued earlier reverse mortgages when borrowers couldn’t maintain the property.
- Interest rate environment: Reverse mortgage rates, like all mortgages, have increased substantially. When I wrote this in 2018, reverse mortgage rates were around 5-6%. In 2025, they’re typically 7-9% or higher, meaning equity depletes faster than before. This makes reverse mortgages more expensive than they were during the low-rate environment of 2010-2021.
- Required counseling: Borrowers must complete HUD-approved counseling before obtaining a reverse mortgage, ensuring they understand the product and alternatives.
There are still some catches. First, you have to pay interest on the amounts you receive, which further depletes your equity—and now at higher rates than when I first wrote this article. Another catch is that either you or your heirs may not own your home in the end, but you’ll never owe more than the home’s value at the time of sale. Government insurance (FHA) protects you if the bank has problems and protects the bank if you use up all your equity before you pass away.
But the benefit to you—a retiree who needs extra income—is that you have the use of your home while also using it to generate an income stream for as long as you live. You must continue to pay for taxes, insurance, and maintenance, which the financial assessment now verifies you can afford.
In my opinion, there are two significant downsides to reverse mortgages. First, you’re using up equity that can’t be used for another purpose down the road. I already mentioned long-term care costs as an example. Plus, if you wanted to pass along a paid-for house to your heirs, that option is off the table.
But my biggest issue with them is the expense. Unlike a HELOC, which has reasonably low costs, setting up a reverse mortgage is like buying a house. There are origination fees (capped at $6,000 or 2% of home value, whichever is less), upfront mortgage insurance premiums (2% of home value), and other closing costs. These can easily total 5-7% of your home’s value—$26,250-36,750 on a $525,000 home.
Then there are the ongoing interest costs. For the life of the loan, the lender will charge interest based on current market rates (typically 7-9% in 2025) plus an FHA annual mortgage insurance premium of 0.5% (reduced from 1.25% in recent years, which is good news). These charges compound over time and can erode your equity rapidly.
Here’s a realistic example: A 70-year-old with a $525,000 home (paid off) takes out a reverse mortgage for $250,000 (roughly 48% loan-to-value, typical for that age). Upfront costs total $30,000 (origination, insurance, closing), immediately reducing available equity to $245,000 net. With a 7.5% interest rate, after 10 years at age 80, the loan balance has grown to approximately $517,000 (original $250,000 principal plus $267,000 in compounded interest). If the home appreciated only 3% annually during that decade, it’s now worth $705,000, leaving only $188,000 in equity—less than the original amount before the reverse mortgage, despite 10 years of appreciation.
This is why I emphasize that reverse mortgages work best as a last resort rather than a first choice. The costs are substantial, and you’re betting that you’ll live long enough in the home to justify those upfront expenses.
Alternatives to consider first: Before pursuing a reverse mortgage, explore these options:
- Downsizing: As discussed earlier, selling and moving to a less expensive home can free up equity without ongoing interest costs.
- Renting out space: If your home has a separate unit or extra bedroom, rental income can supplement retirement without depleting equity.
- Part-time work: Even modest earnings of $10,000-15,000 annually can eliminate the need for reverse mortgage income while preserving equity and providing non-financial benefits (purpose, engagement, social connection).
- Delaying Social Security: If you’re under age 70 and haven’t claimed yet, delaying increases lifetime benefits by 8% per year—potentially providing the extra income you need without touching home equity.
- SPIA or other annuities: Using some liquid savings to purchase a Single Premium Immediate Annuity might generate similar guaranteed income at a lower total cost than a reverse mortgage, especially given current annuity rates (around 8% payouts for 70-year-olds as of late 2025).
But they may be your best solution. Despite their shortcomings, reverse mortgages can be a good retirement income solution for retirees who are “house rich but savings poor” and strongly prefer to age in place. Recent regulatory improvements have made them safer than in the past, though higher interest rates have made them more expensive. If downsizing isn’t appealing and you’ve exhausted other income options, reverse mortgages are a reasonable alternative. Better to use your home equity as part of an overall financial plan than to treat it as a big ATM that you pull money out of every time you have an “emergency.”
Strategic considerations for home equity in retirement
After seven years navigating retirement with substantial home equity, I’ve developed some additional perspectives on how to think about home equity strategically:
Treat appreciation as temporary until realized. The dramatic home price appreciation of 2020-2024 has been extraordinary, but housing markets are cyclical. In many markets, prices have plateaued or even declined slightly in 2024-2025 as higher mortgage rates cooled demand. I’ve been careful not to mentally spend our home equity gains, recognizing that market conditions could reverse. Only when you actually sell and realize the gain does the appreciation become spendable.
Consider geographic arbitrage. One powerful retirement strategy I’ve seen friends execute successfully is relocating from high-cost-of-living areas (California, New York, Seattle) to lower-cost regions (Southeast, Midwest, smaller cities). A couple selling a $800,000 home in San Diego and buying a comparable $350,000 home in North Carolina frees up $450,000 in equity (after transaction costs) that can dramatically improve retirement security. Combined with lower ongoing costs, this geographic arbitrage can be transformative.
Property taxes keep rising. Even with a paid-off home, property taxes can become burdensome, especially in areas where home values have appreciated dramatically. I’ve watched friends see their annual property taxes rise from $3,000 to $7,000+ over a decade even without reassessment, simply from rate increases. This can erode the benefit of owning free and clear. Some states offer property tax freezes or reductions for seniors—research these programs.
Maintenance costs increase as homes and owners age. Older homes require more maintenance (roof, HVAC, foundation, plumbing), and older owners often need to hire work they once did themselves. Budget at least 1-2% of home value annually for maintenance—$5,000-10,000 per year on a $500,000 home. These costs can strain fixed retirement incomes even without a mortgage.
Long-term care planning matters. If one or both spouses eventually need nursing home care, Medicaid planning becomes relevant. Home equity generally doesn’t count against Medicaid eligibility limits if a spouse remains in the home, but the state may place liens for eventual recovery. Understanding these rules before health crises hit allows better planning.
Use your equity with care
There is no doubt that home equity is a valuable resource in retirement—now more than ever given the dramatic appreciation many homeowners have experienced since 2018. It would be wise to give a lot of thought to how you might use it in your situation.
Most retirement planners suggest keeping home equity in reserve for as long as you can, since no one knows what the future might hold. I agree with this approach. After seven years of retirement, I’ve watched our home equity grow substantially, but we’ve resisted the temptation to tap it for anything other than genuine strategic purposes. It remains our financial backstop—available if needed for major health expenses, long-term care, or unexpected crises, but otherwise preserved.
If you’re in desperate need of additional income and have exhausted other options, home equity can be a good source if used appropriately. But given current higher interest rates for HELOCs and reverse mortgages compared to 2018, these tools are more expensive now and should be approached with even greater caution. Downsizing or other alternatives may provide better long-term outcomes.
The key is viewing home equity as a strategic asset within your overall retirement plan rather than an ATM or a windfall to spend. The appreciation many of us have experienced since 2020 represents real wealth that can provide security and flexibility—but only if we’re disciplined about preserving it for times when we truly need it.
Summing up
Home equity remains one of the most significant assets for most retirees, representing 60% or more of net worth for many households. The dramatic appreciation of 2020-2024 has substantially increased this wealth for most homeowners, creating new opportunities but also new temptations.
The best uses of home equity in retirement remain:
- Keeping it paid off to reduce monthly expenses and create financial margin
- Downsizing strategically to free up cash while reducing ongoing costs
- Reserving it as a backstop for long-term care or unexpected major expenses
- Using it carefully through HELOCs only for short-term strategic purposes
- Considering reverse mortgages only as a last resort when other income options are exhausted
The worst uses are treating it as an ATM for discretionary spending or tapping it prematurely before other income sources (like delayed Social Security) have been optimized.
As interest rates have risen substantially since 2018, borrowing against home equity has become more expensive, which should make retirees even more cautious about using these tools. A HELOC that cost 5% in 2018 now costs 7-9% in 2025—nearly double the interest expense. Similarly, reverse mortgages are depleting equity faster due to higher rates.
My advice after living through both a dramatic home price boom and interest rate spike: be grateful for any equity appreciation you’ve experienced, but treat it as a reserve asset rather than spendable wealth until you actually need it. The discipline to preserve home equity during good times often provides the security you need during challenging times—and those challenging times have a way of arriving when you least expect them.