3 home equity borrowing moves seniors should consider now

With inflation sticky, if slightly cooled last month, but interest rates still paused at a high level and stock market uncertainty prevalent for many Americans now, it's understandable if additional financing options need to be explored. This can be a painful reality for seniors and older Americans who were hoping that Social Security and retirement savings would be efficient during their golden years. But the economic climate of recent years has depleted much of that money, making it harder and harder to make ends meet.

Fortunately, homeowners have an alternative worth exploring right under their own roof via their home equity. With the average home equity amount sitting around $313,000, according to a report released earlier in March, there's likely plenty of money to use as needed. And with interest rates on products like home equity loans and home equity lines of credit (HELOCs) much lower than some popular alternatives, this could be the most cost-effective way to borrow money currently.

Still, borrowing from your most prized financial asset shouldn't be done hastily, especially in the current economy, and especially for seniors. So if you're considering turning to your home equity now, it helps to know which select moves to make. Below, we'll break down three home equity borrowing moves seniors should consider now.

Start by seeing how much home equity you could borrow here.

3 home equity borrowing moves seniors should consider now

Here are three major home equity borrowing moves seniors in need of extra money should consider now:

Compare all options

When it comes to borrowing your home equity, there are multiple options to consider, including a senior-specific one. Reverse mortgages, for example, are generally only approved for homeowners 62 and older. But they operate essentially by giving the homeowner monthly payments back out of their equity, versus the homeowner borrowing and then repaying what's been deducted. 

Home equity loans, on the other hand, give the homeowner a lump sum of equity, which will need to be repaid monthly. And HELOCs give the homeowner a line of credit to withdraw from, deducted from the accumulated home equity. For some homeowners with high mortgage rates, a cash-out refinance could also be worth investigating. You won't know which is most applicable to your financial situation, however, until you've compared all of your options.

Compare your home equity loan and HELOC options here now.

Calculate a variety of repayment costs

If you're pursuing a reverse mortgage, repayment costs are less of a concern. In this case, you'll only need to worry about a diminished home value upon the sale of the home or the death of the homeowner. But with a home equity loan, HELOC or cash-out refinance, you will need to make repayments, perhaps immediately, depending on the product being used. So it's critical to calculate those repayment costs before getting started, especially considering that you'll need to restructure your current mortgage loan if you choose a cash-out refinance. 

And a HELOC has a variable interest rate subject to change monthly for borrowers, making repayments there a bit unpredictable. What you don't want to do is borrow money and then struggle to repay it, putting yourself in a worse financial position than when you started. To avoid that situation, then, be sure to calculate a variety of repayment costs to precisely determine affordability.

Understand the pros and cons

Home equity loans, HELOCs, cash-out refinances and reverse mortgages will all allow seniors to access their home equity in some way. But they don't operate identically and, accordingly, each will have unique pros and cons. Examine those for each to determine which is optimal for your unique financial situation. Since your home functions as collateral in many of these borrowing exchanges, it could be foreclosed on by the lender if you're unable to make your repayments. To avoid this, it helps to know the pros and cons of each home equity borrowing product. And it may be helpful to speak to a lender who can answer questions specific to your financial circumstances and budget before getting started.

The bottom line

Seniors in need of extra financing may find it helpful and relatively simple to turn to their home equity. And with multiple options available, accessing this funding could be done quickly. Still, it's important to go into any home equity borrowing exchange clear-eyed and strategically, especially considering the unique financial circumstances that led to the need for this extra money to begin with. By comparing all options, calculating a variety of repayment costs and clearly understanding the pros and cons of each product, seniors can better set themselves up for borrowing success and, hopefully, get their financial health back on track.

Have more questions? Learn more about your home equity borrowing options here.