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Your home might be your most valuable asset in retirement. simonapilolla/Envato

I’m 73 years old and have annual health care costs of $27,000 that are emptying my savings — tapping into my home equity is my last resort. How can I do it safely?

Maurie Backman
Nov 9, 2024
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Many older Americans enjoy a decline in spending once the sun sets on their careers. However, there’s one expense they wish to see sunset in retirement, it’s health care.

Fidelity reports that the average 65-year-old today will spend $165,000 on health care costs, but that estimate does not take into consideration the cost of long-term care.

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Genworth puts the average annual cost of a full-time home health aide at $75,504 for 2023, while the average cost of assisted living was $64,200. Nursing homes were even more expensive, with an average price tag of $104,025 for a shared room and $116,800 for a private room.

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If you’re a retiree with limited funds and your health is eating up an uncomfortably large chunk of your savings, you may have feelings of despair. And you may be considering tapping your home equity to scrounge more money. However, before you do that, you should know the pros and cons of this approach.

An option available to many seniors

The National Council on Aging (NCOA) says that homeowners aged 65 and over have a median home equity of $250,000. A big part of that stems from a recent boost in home values.

As of 2022, the median retirement account balance among Americans aged 65 to 74 was only $200,000, according to the Federal Reserve. Many older Americans might have more home equity than actual savings.

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The safest way to tap into home equity

Since 1990, more than 1.3 million older Americans have taken out a reverse mortgage to tap into their home equity, according to the NCOA. However, reverse mortgages have their drawbacks.

The loans work by becoming payable once a homeowner dies, sells their home or moves. However, there’s a caveat: if you can’t live in your home for more than 12 months due to a medical reason, your loan will be due immediately. If you can't pay it, you lose your home.

A home equity loan or HELOC may be a safer option for tapping into your home equity. But there are drawbacks to consider here, too. With a home equity loan, you will borrow a lump sum of money at a fixed interest rate. The good thing about home equity loans is that your monthly payments are predictable. The bad thing is that if you fall far enough behind, you could risk losing your home as well.

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A HELOC, or home equity line of credit, gives you access to a line of credit you can use during a preset window. It may be five years, 10 years or another time frame.

Unlike a home equity loan, the interest rate on a HELOC is variable. This can be problematic because it can result in unpredictable monthly payments. When you’re retired and on a fixed income, that variability could prove dangerous. Similar to a home equity loan, falling behind on HELOC payments could put you at risk of losing your home.

Of course, there’s another option for utilizing home equity: selling your home, downsizing to a less expensive place and pocketing the proceeds. But this requires you to uproot yourself, which may not be ideal. However, if maintaining and covering the costs of your home is causing you to struggle financially, moving to a smaller space may not be such a bad thing.

If you can buy a smaller home outright after selling your current property, you won’t have to worry about owing money. At a time when you’re trying to focus on taking care of your health, one less stressor could be crucial to your health.

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Maurie Backman Freelance Writer

Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.

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