Home equity & retirement
Using Home Equity Instead of Selling Investments in a Down Market
When markets fall, retirees who need cash face a hard question: sell investments while they are down, or find another way to cover expenses? For some homeowners age 62 and older, home equity can be a source of cash flow that helps them avoid selling at the wrong time. Here is how the idea works — and what to weigh before deciding.
Every situation is different. Mortgage Capital Services can help you understand how reverse equity compares with other options, and explain the responsibilities that continue after closing — so you and your financial advisor can make an informed decision together.
The problem with selling investments while they are down
Financial planners sometimes describe the risk of "selling low" in retirement as a sequence-of-returns concern: when you withdraw money from an investment account during a market decline, you lock in those losses, and there are fewer assets left to recover when the market eventually turns. Drawing heavily from a portfolio early in a downturn can have a lasting effect on how long that portfolio lasts.
This is not investment advice, and whether it applies to you depends entirely on your own finances, goals, and timeline. It is a question worth raising with a qualified financial advisor.
How home equity can act as an alternative source of cash
For homeowners who are at least 62, a reverse equity loan — including the federally insured Home Equity Conversion Mortgage, or HECM — can convert a portion of home equity into available funds while the homeowner continues to live in the home. Depending on the program and the borrower's situation, those funds may be structured as a line of credit or other available proceeds.
Some retirees and their advisors use a reverse equity line as a "buffer" to draw on during down markets, with the goal of giving their investments time to recover before selling. The amount available, the costs, and the structure all depend on the borrower, the property, and current program rules.
What to weigh before you decide
- A reverse mortgage is a loan that must be repaid, typically when the last borrower no longer lives in the home. It reduces the equity in your home over time.
- There are upfront and ongoing costs. Ask for a clear explanation of all fees before you proceed.
- Loan proceeds may affect eligibility for certain need-based government benefits. Check with the appropriate agency.
- HECM borrowers are required to complete independent counseling from a HUD-approved counseling agency before moving forward.
- Talk with a financial or tax advisor about how this fits your overall retirement plan and your wishes for your heirs.
Responsibilities continue
With any reverse equity loan, the borrower must continue to meet loan obligations, including property taxes, homeowners insurance, property maintenance, and any applicable HOA or similar obligations. Failing to keep up with these responsibilities can cause the loan to become due. Eligibility, proceeds, costs, and timing depend on the borrower, the property, and current program requirements.
Important: This article is educational and is not financial, legal, or tax advice, or a commitment to lend. A reverse mortgage is a loan that must be repaid. This material is not from HUD or FHA and was not approved by HUD, FHA, or any government agency. All loans are subject to credit approval, property eligibility, and program requirements. Mortgage Capital Services LLC, NMLS #2694379 · Samantha S. Peel, Mortgage Loan Officer, NMLS #2685482, licensed in Georgia & South Carolina · Equal Housing Opportunity.