For most retirees in the Philadelphia suburbs, the home is the largest single asset they own, and the equity in it often exceeds their retirement savings. That equity, however, is illiquid: it cannot fund a retirement while it sits in the house. There are four main ways to access it, and each involves a different trade-off between how much equity you free, whether you keep the home, and what it costs. Understanding the options clearly is the foundation of using the home as the retirement resource it can be.
This guide explains the four approaches and their trade-offs.
Option 1: Downsize (sell and buy smaller)
The most common and often most financially efficient way to access home equity is to sell the larger home and buy a smaller, less expensive one. The difference in price, after costs, becomes available equity.
How it works: Sell the $750,000 family home, buy a $425,000 townhome or condo, and free roughly $325,000 (before selling costs and any costs on the purchase). That freed equity can supplement retirement income, be invested, or provide a cushion.
The advantages: It frees a substantial amount of equity, reduces ongoing maintenance and carrying costs, and often results in a more accessible, lower-maintenance home better suited to retirement. The capital gains exclusion usually protects most or all of the gain from tax, as covered in the tax considerations of selling in retirement.
The trade-offs: It requires moving, with the effort of clearing the family home and adjusting to a new community. And the freed equity is the difference between the two homes, so a modest downsize frees less than a significant one.
For retirees who are ready to right-size anyway, downsizing is usually the most efficient way to access equity because it solves the maintenance and accessibility questions at the same time.
Option 2: Home equity loan or HELOC
A home equity loan or home equity line of credit (HELOC) lets the homeowner borrow against the equity while keeping the home.
How it works: A home equity loan provides a lump sum repaid over time. A HELOC provides a revolving line of credit that can be drawn on as needed. Both are secured by the home and require monthly payments.
The advantages: The homeowner keeps the house and the community. Funds can be accessed without moving. A HELOC offers flexibility, borrowing only what is needed when it is needed.
The trade-offs: Both require monthly payments, which can strain a fixed retirement income. Qualifying for the loan requires sufficient income, which can be harder in retirement. And the debt must eventually be repaid, often from the eventual sale of the home, reducing what is left for heirs or for a later move. Interest rates on these products also vary with the market.
Home equity borrowing makes the most sense for accessing a specific, bounded amount, funding a home improvement, covering a one-time expense, while keeping the home, rather than as a long-term income strategy.
Option 3: Reverse mortgage
A reverse mortgage (most commonly a federally-insured Home Equity Conversion Mortgage, or HECM) lets homeowners 62 and older access equity without monthly payments, with the loan repaid when they sell, move out, or pass away.
How it works: The lender pays the homeowner, as a lump sum, monthly payments, or a line of credit, and the loan balance grows over time. No repayment is required as long as the homeowner lives in the home and meets the obligations (paying property taxes, insurance, and maintaining the home). The loan is repaid from the home’s value when the homeowner permanently leaves.
The advantages: No monthly payments. The homeowner stays in the home. It can provide income or a financial cushion for retirees who want to age in place and are house-rich but income-tight.
The trade-offs: The loan balance grows over time as interest and fees accrue, reducing the equity left for heirs or for a future move. Fees and closing costs are significant. The homeowner must keep up with property taxes, insurance, and maintenance or risk default. And reverse mortgages are complex products that require careful, independent advice, federal rules require counseling before one can be obtained, for good reason.
A reverse mortgage can be the right tool for a specific situation, a retiree committed to aging in place who needs income and has no need to preserve the home’s equity for heirs, but it is a decision to make with independent financial advice, not a default.
Option 4: Sell and rent
Some retirees sell the home and rent rather than buy, freeing all the equity and eliminating ownership entirely.
How it works: Sell the home, free the full equity (after costs), and rent a home or apartment.
The advantages: It frees the maximum amount of equity, eliminates all maintenance and ownership responsibilities, and offers maximum flexibility, ideal for retirees who plan to travel, relocate, or who simply do not want to own property.
The trade-offs: Rent is an ongoing cost with no equity accumulation, and rent can rise over time. The retiree gives up the stability and potential appreciation of ownership. For retirees who value flexibility over ownership, this is a feature, not a drawback, but it is a genuine trade-off.
How to choose
The right option depends on a few questions:
- Do you want to keep this specific home? If yes, a HELOC or reverse mortgage. If no, downsizing or sell-and-rent.
- How much equity do you need to access? Downsizing and sell-and-rent free the most; home equity borrowing frees a bounded amount.
- Can your retirement income support monthly loan payments? If not, a reverse mortgage or downsizing avoids them; a HELOC or home equity loan does not.
- How important is preserving equity for heirs? Downsizing preserves the equity in the new home; reverse mortgages consume it over time.
The decision is genuinely individual and benefits from independent financial advice alongside the real estate analysis. Karen provides the real estate side, what the home would sell for and what a downsizing move would net, so the financial advisor can model the full picture accurately.
This guide is general information, not financial advice. A financial advisor should be consulted for any decision about accessing home equity.
Working with Karen
Karen Langsfeld is a REALTOR® and Pricing Strategy Advisor (P.S.A.) with Berkshire Hathaway HomeServices Fox & Roach in Blue Bell. She works with retirees across Montgomery County, Bucks County, the Main Line, and South Jersey, providing the market analysis that turns the equity question into real numbers.
For the broader retirement housing decision, the guides to should I sell my house when I retire and aging in place vs. downsizing cover the full framework.
Contact Karen at (215) 495-2914 or through the contact page.