Dave Ramsey opposes using home equity loans or reverse mortgages in retirement. He recommends paying off your mortgage entirely and avoiding any borrowing against your home.
However, tapping home equity can make sense for some retirees in specific situations. If you need help covering bills or want to consolidate high-interest debt like credit card balances, accessing home equity may offer lower borrowing costs than unsecured debt.
Two main options exist. Home Equity Conversion Mortgages, or HECMs, are reverse mortgages available only to homeowners age 62 or older. They provide a lump sum, line of credit, or fixed monthly payments. A home equity line of credit, or HELOC, lets you draw money over time up to a maximum amount and does not require you to be 62.
Before tapping home equity, understand the risks. Your home serves as collateral, which means you risk foreclosure and losing your home if you cannot repay. You will also pay fees, property taxes, and home insurance. Avoid using home equity for discretionary spending like vacations.