AARP Hearing Center
Key takeaways
- Home equity can be a significant retirement asset for many homeowners.
- Selling, refinancing or using a HELOC offer different ways to access cash.
- Reverse mortgages may provide income but require careful research and guidance.
Summary
Jean Chatzky explains how home equity can play an important role in retirement planning for Gen X homeowners. Using a sample scenario, she shows how years of mortgage payments and home appreciation can create substantial equity that may be converted into retirement income.
Chatzky outlines several options for accessing that value, including selling a home, pursuing a cash-out refinance, opening a home equity line of credit and considering a reverse mortgage. She highlights the benefits, costs and trade-offs associated with each strategy, emphasizing that understanding these choices can provide greater financial flexibility and control in retirement.
The key takeaways and summary were created with the assistance of generative AI. An AARP editor reviewed and refined the content for accuracy and clarity.
Full transcript
[0:00:00] Gen Xers have a lot of financial demands to juggle: aging parents, kids in college, mortgages.
[0:00:08] Saving for the future may not always be possible, but if you’re a homeowner, one of your biggest assets in retirement is the equity in your house.
[0:00:19] In my book, The Forever Paycheck, I walk through how to turn your assets, including your house, into a steady retirement paycheck.
[0:00:27] So let’s focus on how to turn that equity into cash.
[0:00:33] Here’s an example that may sound familiar.
[0:00:35] You bought a house decades ago for around $250,000.
[0:00:40] You took out a $200,000 mortgage, and you’ve been making those payments like clockwork.
[0:00:47] Now your home is worth about $500,000 and you only owe $100,000 on it.
[0:00:54] That means you are sitting on about $400,000 in home equity.
[0:01:01] When the time comes, how do you actually get that money out?
[0:01:06] Well, let’s start with a common tactic.
[0:01:08] You could sell your house.
[0:01:10] This is the simplest, cleanest way to unlock the most cash.
[0:01:15] If you buy or rent a new place at a lower cost, you can bank the difference.
[0:01:19] But don’t forget to factor in the surprise costs, closing costs on the home you sell and the one you buy, moving expenses, HOA fees if your new place has them, and yes, capital gains taxes might come into play.
[0:01:36] A cash-out refinance lets you stay put while borrowing against your equity.
[0:01:42] The bank gives you a new, bigger mortgage and hands you the difference in cash.
[0:01:48] You get a lump sum — maybe that whole $400,000, maybe less.
[0:01:55] If you can invest that money at a rate of return that is higher than your new mortgage rate, that’s a win.
[0:02:02] But remember, you’ll have a new mortgage and all the fees that come with it, like closing costs.
[0:02:08] And if you locked into one of those beautiful low interest rates years ago, replacing it with a higher one might sting.
[0:02:17] You could also consider a home equity line of credit.
[0:02:21] A HELOC is basically a credit card backed by your house.
[0:02:26] You don’t get a lump sum.
[0:02:29] Instead, you get a line of credit that you can dip into when you need it.
[0:02:34] You want to remodel the kitchen?
[0:02:37] You wanna build an in-law suite.
[0:02:40] You wanna cover a big unexpected bill.
[0:02:45] A HELOC can be a quick way to do it at a lower cost than if you used a credit card.
[0:02:51] There are usually no big up-front closing fees with a HELOC, and the process is faster than a refi.
[0:02:58] But, and this is important, you do have to pay back whatever you take out with interest.
[0:03:06] There are other tools out there, including reverse mortgages, a transaction where the bank basically buys back the equity in your house while allowing you to keep living there.
[0:03:18] The money can come in the form of a monthly payment, but reverse mortgages can be complicated and risky.
[0:03:27] So if that’s something you’re considering, it’s worth talking to a housing counselor or doing deeper research.
[0:03:34] Your home is more than a place to live.
[0:03:37] It’s one of your biggest financial tools for retirement, and the more you understand your options, the more control you have over your future.
[0:03:46] Learn more in my book, The Forever Paycheck, and visit
[0:03:50] aarp.org/foreverpaycheck
