You can use home equity in retirement in six main ways. Downsize, sell and rent, borrow with a home equity loan or HELOC, take out a reverse mortgage, rent out space, or keep the equity as a backup. Each one turns part of your house into cash or income, and each one has costs.
There’s a lot of equity to work with. Homeowners 62 and older held a record $15.34 trillion in home equity in the second quarter of 2026, according to the National Reverse Mortgage Lenders Association. For many retirees, the house is their largest asset.
The right move depends on where you want to live, how much income you need, and what you hope to leave behind. Here’s how each option works and when it makes sense.
Does Home Equity Count as Retirement Savings?
Home equity counts toward your net worth, and it can fund retirement. It isn’t liquid, though. You can’t spend it until you sell, borrow against the house, or rent it out. That’s why many retirement plans count it apart from savings.
The typical homeowner has plenty of it. The Federal Reserve’s 2025 Survey of Consumer Finances puts median home equity at $230,000, and the average home equity for mortgaged homeowners was $310,000 in mid-2026.
Many people expect to draw on it. In EBRI and Greenwald Research’s 2026 Retirement Confidence Survey, 58% of workers said they expect home equity or rental income to help fund retirement. Among retirees, 33% use it.
That gap is one reason many Americans are rethinking the role of home equity in retirement. Counting your home as part of an expanded net worth gives you a fuller picture of what you can draw on.
6 Ways to Use Home Equity in Retirement
The six ways to use home equity in retirement differ in how you get the money, what it costs, and whether you keep the house. This table compares them.
| Option | How you get money | Main costs and risks | Often fits |
|---|---|---|---|
| Downsize | Sell, buy a cheaper home, keep the difference | Selling and moving costs, new property taxes | Empty nesters with more house than they need |
| Sell and rent | Sell and invest or spend the proceeds | Rent increases, no home to pass on | People who want flexibility or plan to move again |
| Home equity loan or HELOC | Borrow against the house and repay monthly | Monthly payments and interest; the home secures the loan | Short-term needs when you have income to repay |
| Reverse mortgage (HECM) | Borrow with no monthly payment; repay when you leave the home | Upfront costs, a growing loan balance, less left for heirs | Homeowners 62 and older who plan to stay put |
| Rent out space | Rent a room, a unit, or the whole home | Landlord work, taxes on rental income | People with space to spare |
| Keep it as a backup | No cash now; the option stays open | Money you could have used sooner | Anyone with enough income from other sources |
1. Downsize to a smaller or less expensive home
Downsizing means selling your home and buying one that costs less. You can pay cash for the new place, cut or end your mortgage, and keep the difference. A smaller home can also lower your insurance, taxes, and upkeep.
Taxes on the sale may be lower than you expect. The IRS lets you exclude up to $250,000 of gain from the sale of your main home, or $500,000 if you’re married filing jointly. You generally need to have owned and lived in it for two of the past five years.
Selling costs, moving costs, and a new home’s price can eat into what you keep. Downsizing for retirement pays off most when you price both homes and time the sale before you need the cash. Clearing out first helps, too, and Swedish death cleaning is one way to start.
2. Sell and rent your next home
Selling and renting frees up all of your equity at once. You can invest the proceeds for income and let a landlord handle repairs. Renting also makes it easier to try a new city, or several, before you settle.
The tradeoff is that rent tends to rise over time, and you’ll have no house to pass on. Renting fits best when you want flexibility, or when you’re still deciding on the best place to retire. Some people go smaller still, and a tiny house can cut housing costs further.
3. Borrow with a home equity loan or HELOC
A home equity loan gives you a lump sum at a fixed rate. A home equity line of credit (HELOC) lets you draw money as you need it, usually at a variable rate. Both come with monthly payments, and your home secures the debt.
Lenders look at your income to approve you, so it can be easier to qualify while you’re still working. That’s one reason some people secure a home equity loan before they retire. Interest is deductible only if you itemize and use the money to buy, build, or improve your home, according to IRS Publication 936.
4. Get a reverse mortgage
A reverse mortgage lets homeowners 62 and older borrow against their equity with no monthly loan payments. The loan comes due when you sell, move out, or die. You still own your home, so you pay property taxes, homeowners insurance, and upkeep.
The most common type is the Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration. For 2026, a HECM can be based on a home value of up to $1,249,125, according to HUD. You can take the money as a lump sum, monthly payments, a line of credit, or a mix. A reverse mortgage line of credit can be more flexible than a HELOC. It requires no monthly payments, and the unused portion grows over time.
Upfront costs run higher than most loans, and the balance grows over time. That leaves less equity for you or your heirs later. The older you are and the more your home is worth, the bigger the payout from a reverse mortgage, up to the HECM limit. Higher interest rates shrink it.
5. Rent out part of your home
If you have more space than you need, it can earn income. You could rent a spare room, add a separate unit, or rent the whole house while you travel. Rental income is taxable, and you take on a landlord’s responsibilities. A separate rental property is another route, and one of several ways to invest in real estate for retirement.
Some older homeowners share a home with friends or housemates to split costs. Golden Girls-style home-sharing can bring in income and company at the same time.
6. Keep your equity as a backup plan
Leaving your equity alone is a strategy, too. Your home can serve as a reserve for big, uncertain costs later in life. Long-term care is the biggest of them, and selling or borrowing against a home is a common way to pay for it.
Planning for long-term care with your home in mind gives you more choices if you need care. Equity can also tide you over in a market downturn, so you don’t have to sell investments at a loss.
When Does Using Home Equity in Retirement Make Sense?
Using home equity in retirement makes the most sense when it solves a specific problem in your plan. Common reasons include:
- Covering a shortfall. If your savings won’t stretch as far as you’d like, equity can fill part of the gap.
- Riding out a market drop. Drawing on equity for a year or two lets your investments recover.
- Paying off higher-interest debt. A home equity loan can cost less than credit card debt, though it puts your home on the line.
- Paying for care. Equity can fund in-home care or a move to assisted living.
- Lowering your costs. A smaller or cheaper home can shrink your budget for decades.
- Retiring earlier. Downsizing can free up enough cash to stop work sooner.
Think twice before spending equity early in retirement. Once it’s gone, you lose your backup for health costs and other surprises.
Should You Pay Off Your Mortgage Before You Retire?
Paying off your mortgage before you retire lowers your monthly costs and the income you need. It also ties up cash that you could invest or keep on hand. The answer depends on your interest rate, your tax picture, and how much you value having no house payment.
If your mortgage rate is low, investing instead of paying off your mortgage may come out ahead over time. Keeping a mortgage in retirement also leaves more cash available for emergencies and other goals.
How Can You Lower Housing Costs Without Selling?
Most older adults want to stay where they are. In AARP’s 2024 Home and Community Preferences Survey, 75% of adults 50 and older said they want to remain in their current homes as they age. In the same survey, 51% said they need a home that supports independent aging.
Staying put works better with a plan for costs and safety. Home-sharing, better mortgage terms, and a reverse mortgage can all cut housing costs in retirement. Shopping your coverage helps, too, since property insurance costs keep climbing. Simple changes like grab bars and better lighting can help you stay in your home longer.
How Can You Model Home Equity in Your Retirement Plan?
Home equity decisions are hard to reverse, so test them first. The Boldin Planner lets you model each option against your full plan:
- Downsize or relocate. Add a future sale and purchase in Home & Real Estate, then lower your expenses for the new home.
- Reverse mortgage. Model one in Home & Real Estate and compare your savings at 85 and 95.
- Home equity loan or HELOC. Add it as a debt, then compare it with a scenario that leaves the house alone.
- Rental income. Add it as income and see how much it adds over time.
- Long-term care. Choose home equity as a way to pay for care and see how long it lasts.
Your home is likely one of your biggest assets. A plan helps you decide when to use it, how much to tap, and how much to keep in reserve.
FAQs About Home Equity in Retirement
Is it smart to use home equity in retirement?
Using home equity in retirement can be smart when it fills a clear gap, such as covering care costs or lowering your expenses. It's riskier when it funds everyday spending early on, since you lose a backup for later. Compare options by cost, flexibility, and what you want to leave heirs before you decide.
Can you get a HELOC after you retire?
Yes, retirees can get a HELOC. Lenders count income such as Social Security, pensions, and regular retirement account withdrawals. Approval can be harder without wages, so some people open a line of credit before they stop working. Most HELOCs have variable rates and monthly payments, and your home secures the debt.
What happens to your home equity when you die?
Your home equity passes to your heirs through your will, trust, or state law. If the home has a mortgage, heirs can pay it off, refinance, or sell. With a reverse mortgage, heirs repay the loan, often by selling. For a HECM, they won't owe more than 95% of the home's appraised value.
How much home equity should you have when you retire?
There's no set amount of home equity you need at retirement. What matters is how your housing costs fit your income and whether you want the house as a backup. Someone with a paid-off home and modest savings faces different choices than someone with a large mortgage and a big portfolio.
Is it better to downsize or get a reverse mortgage?
Downsizing tends to cost less and free up more cash, but it means moving. A reverse mortgage lets you stay in your home with no monthly loan payments, with higher upfront costs and less equity left later. If you'd move anyway within a few years, downsizing is often the better fit.
