A home equity loan can help you consolidate and pay off the rest of your debt, letting you focus on the more important things

Home equity (how much you owe on your mortgage subtracted from how much your home is worth) can be a useful and often overlooked retirement asset. If you have holes (things you want or need to fund) in your retirement plan, they can perhaps be filled with your home equity.

Too many people have not saved quite enough for a secure retirement, but your home equity may make up the difference between what you need in savings and what you actually have.

You have many options for accessing your home equity. They include…

Securing a Home Equity Loan

Debt in retirement is not optimal However, mortgages (especially if you have a lower interest rate) are considered acceptable. A home equity loan increases your debt. You are borrowing some of the money you have built up in equity in the home. This debt must be repaid and payments start as soon as you secure the loan.

Renting Out a Room, Part, or All of Your Home

Depending on how you want to live your life, you can rent out parts or all of your home. (Live with a Stranger? No way I could do that!)

• Would you consider Golden Girls style living where you rent out part of your home?

Getting a Reverse Mortgage

A reverse mortgage is a kind of loan that does not require payments while you are still living in the home.

The federally-insured Home Equity Conversion Mortgage (HECM) program allows homeowners aged 62 and older to borrow against the value they’ve built up in their homes. Borrowers can use their proceeds to pay off the remainder of their existing mortgage if you have one, which is also one of the loan’s requirements. Any remaining funds can then be used at the borrower’s discretion.

Common Reasons People Tap Their Home Equity During Retirement

A retirement plan is a complicated equation of unknown risks, assets, income, expenses, debts, obligations, values, goals, and priorities. And, too often your savings, benefits, and retirement income are an inadequate match for your retirement needs, wants, and the unforeseen costs that can occur.

Home equity can sometimes fill the gap. Consider these relatively common ways people use their home equity to fund retirement.

Bridge Through a Financial Crisis, Emergency, or Other Need (Home Equity is a Good Back Up Plan)

Okay, let’s say that your investments are down right now. But, you need to make withdrawals to fund your expenses. You don’t want to sell when the market is down, but you need the cash.

Well, if you have home equity, then you could tap into that pool of money instead of your investments to bridge through the market trough.

The same principle applies to other surprise expenses that you might encounter in retirement. You’ll simply want to weigh the costs of tapping home equity with the costs of securing the needed funds from savings or another asset.

Consolidate Debt

Because the interest rate is usually lower and can be tax deductible, mortgage debt is often better than other kinds of debt. If you have debt, you may want to consider using a home equity loan to pay off the loans. It is likely that this will reduce your lifetime debt payments and improve your monthly cash flow.

Fund Long-Term Care

You don’t know if you will require long-term care in the future, but if you do it can be prohibitively expensive. It is fairly common for people to tap home equity to fund this type of care. You can sell your home to afford a nursing home or get a reverse mortgage (or home equity loan if you can qualify) to pay for in-home care.

Provide for Living Expenses After Savings Run Out

The good news is that we are living relatively long lives. The bad news is that those long lives require a lot of savings. If your savings run out before you do, you can tap home equity to fund your longevity.

Improve Lifestyle by Using Home Equity

It is a fact that many households have less retirement savings than are required to live the life they would like to.

Depending on your overall financial picture, you could cautiously tap into your home equity to make up the difference. We say cautiously because retaining your home equity for emergencies or other critical expenses is a wise tactic.

If you use home equity to fund household expenses throughout retirement, make sure that you are comfortable with how to medical costs, the possibility of long-term care, and a longer-than-expected life.

Retire Earlier

Like using home equity to fund an improved lifestyle, proceed cautiously if you want to use your home to help you retire earlier. It is possible, and can be a great option, especially if you have accumulated significant equity. 

You just want to make sure that you have adequate equity to help you out if you encounter something unexpected in the future.

The only option you can take that gets you what you want is a Reverse Mortgage, because you don't add the burden of having to make monthly payments. 

Some people still think that they need to leave something for their children. I say no way! I've done enough by raising you :). Unless there is a special needs situation,  I'm going to enjoy my retirement and you can have whatever I don't spend.