By Tim MaxwellHow to Use Your Home Equity for Retirement Income
By Tim Maxwell
Quick Answer
If you’re looking for ways to round out your retirement income, you can tap into your home equity with a cash-out refinance or a reverse mortgage. You can also consider downsizing to a less expensive home.
Retirement income can come from many sources, including Social Security, 401(k) or IRA funds, investments, annuities, pension income and personal savings. Most people will need to draw on several of these income streams. That's because most retirees don't reach the often-cited benchmark of saving 10 times their current salary before leaving the workforce. In fact, about 70% of current retirees wish they had saved more and planned earlier, according to the Employee Benefit Research Institute.
If you need a little extra to bolster your income in retirement, there's one resource you might not have considered: your home equity. The average homeowner with a mortgage has roughly $299,000 in accumulated equity, according to Cotality's third-quarter 2025 Homeowner Equity Report.
Here are four ways to turn your home equity into retirement income.
1. Get a Cash-Out Refinance
A cash-out refinance can give you access to a large sum of money and ideally lower your interest rate, depending on current market rates and your credit profile. With this option, you take out a new and larger home loan than your existing one. The new mortgage pays off the original home loan, and you can use the excess funds for other things, including retirement income.
The process to get a cash-out refinance is similar to when you obtained your original loan. The lender will review your income, debts, assets and credit to qualify you and set your interest rate for your new loan. To qualify, you generally need to retain about 20% equity in your home after including the cash-out amount you're trying to qualify for.
Keep in mind, lenders usually allow you to borrow up to 80% of your property's value.
Example: If your home is worth $500,000 and you owe $250,000 on your mortgage, you could take out a new loan of up to $400,000 (80% of $500,000). Then, $250,000 of that amount would be directed to pay off your existing mortgage, and you'd receive $150,000 to add to your retirement funds.
| Pros | Cons |
|---|---|
| Access a lump sum of cash for retirement income | Larger loan balance and likely higher loan payment |
| Interest rates are usually lower than personal loans and credit cards | Closing costs typically range anywhere from 2% to 6% of the borrowed amount |
| Can still own home and build equity | Home could go into foreclosure if payments missed |
Learn more: How Does Refinancing a Mortgage Work?
2. Sell Your Home and Buy Something Less Expensive
Downsizing is another option and may make sense if your home is larger than you need. Selling your home and moving to a less expensive property could give you a lump sum of cash to pad your nest egg. Depending on your mortgage balance, you may have access to a sizable sum. With homeowners sitting on home equity averaging nearly $300,000, even a portion of that could go a long way toward covering your expenses in retirement.
Several factors determine your home's value, including:
- Real estate comps of similar properties in your area: What are homes like yours selling for in your neighborhood?
- Demand for your neighborhood: This is often driven by proximity to quality schools and low crime rates, among other factors
- The age and condition of your home: Newer and updated homes generally earn higher appraisals than older, outdated ones.
- The housing market: The housing market is constantly in flux and can be very specific to your local area. Nationally, home prices are up 1.1% in January 2026 compared to a year ago, with a median sales price of $422,980, according to Redfin.
| Pros | Cons |
|---|---|
| Gives you access to home equity as cash you can invest or add to retirement budget | Closing costs ranging from 2% to 5% of the financed amount |
| A smaller home may give you lower home insurance premiums, utility bills and property taxes | Could still have a mortgage loan |
| Lower (or no) mortgage balance | Potentially face new expenses, such as homeowners association (HOA) fees and storage costs |
Learn more: Financial Pros and Cons of Downsizing Your Home
3. Get a Reverse Mortgage
A reverse mortgage can be a good option to supplement your retirement income while allowing you to stay in your home. If you're 62 or older and have adequate home equity, you can continue living in your home without taking on a monthly mortgage payment. This option works similarly to a home equity loan or line of credit, allowing you to access your home equity as cash. You can receive that cash in a lump sum, in fixed monthly payments or as a credit line that you can draw on as needed. But unlike those loan types, you don't have to repay it in monthly payments. In most cases, the loan is repaid by selling the home and it can become due when one of the following occurs:
- When you pass away: At that point, your heirs can repay the loan, refinance it or sell the home.
- If you move: If you move out permanently or to a care facility for more than 12 consecutive months, your lender may request repayment.
- If you fall behind on required housing expenses: Missing property taxes, homeowners association fees or insurance premiums can trigger repayment.
- If the home isn't maintained: Lenders may require repayment if the property condition falls below their requirements.
There are several types of reverse mortgages. The most common is called a home equity conversion mortgage, which is insured by the Federal Housing Administration. In 2026, these are capped at $1,249,125.
| Pros | Cons |
|---|---|
| Can tap your home equity without selling or moving | Must pay property taxes, insurance and upkeep and keep the home as your primary residence |
| IRS typically won't tax reverse mortgage proceeds, though individual tax situations may vary | Reduces your home equity |
| No monthly mortgage payments required while you live in the home | Loan balance grows over time |
Learn more: Home Equity Loan vs. HELOC vs. Reverse Mortgage: What's the Difference?
4. Rent Out Part of Your Home
If you'd rather not sell your home or borrow against your equity, you might consider renting out part of your home. If you have the extra space, this option could give you a steady income stream to supplement your retirement.
You can rent to a long-term tenant for steady monthly income, or you might offer your space on short-term platforms like Airbnb. Before pursuing this option, take time to think about your privacy and lifestyle preferences to make sure you'd be comfortable with either option.
You could also rent a detached garage or private basement, which may have a separate entrance. If you have extra space on your property, you might consider building an accessory dwelling unit (ADU), often referred to as a granny flat or backyard bungalow. This option is becoming increasingly popular. Modular and ADU builder Mesocore reports the global ADU market is valued at nearly $20 billion today and is on track to more than double by 2034, growing at roughly 9% annually.
| Pros | Cons |
|---|---|
| Receive steady monthly income | Rental income may not be stable |
| Don't have to sell the home or take on new debt | Tenants in your home reduce your privacy |
| ADUs can improve your property value | Adds landlord responsibilities such as making repairs, collecting rent and screening tenants |
Other Ways to Supplement Your Retirement Savings
If you don't have sufficient home equity or aren't comfortable borrowing against it, there are other ways to supplement your retirement income. That might include:
- Delaying Social Security benefits: You can begin collecting Social Security retirement benefits at age 62, but your monthly payment will be permanently reduced if you claim benefits before your full retirement age. If you're born in 1960 or later, your full retirement age is 67. Waiting from age 62 to your full retirement age can raise your monthly benefit by 30%.
- Picking up a part-time job: Consider retail work at a local store or consulting within your former industry to bring in supplemental income. Working a few hours a week can help boost your income and keep you active in the community.
- Continuing to invest: A well-allocated investment portfolio can cover income gaps during retirement. That doesn't mean you have to assume a ton of risk, but maintaining some exposure could help you offset inflation when you're no longer working. A financial professional can provide personalized guidance here.
- Purchasing an annuity: An annuity is a contract with an insurance company, bank or brokerage firm in which you pay a lump sum in exchange for guaranteed monthly income in retirement. These financial instruments are specifically designed to help prevent retirees from outliving their retirement savings.
Tip: Use the Social Security Administration's online calculator to compare different retirement dates to see how each could impact your benefit amount.
Frequently Asked Questions
Strong Credit May Improve Your Cash Flow Options in Retirement
In retirement, your home can double as your sanctuary and a source of supplemental income. But if you pursue one of the options above, make sure you understand the risks before you commit. With a cash-out refinance, for example, the lender can foreclose if you fall behind on payments. Downsizing to a less expensive home or renting a part of your home are also valid options, but make sure the numbers and lifestyle adjustment makes sense for you.
Cash flow is a key part of living the life you want in retirement. Maintaining strong credit is equally important. This is especially true if you're considering a cash-out refinance, since your credit score may affect the rate you'll qualify for. See where your credit stands by checking your Experian credit report and FICO® ScoreΘ for free. You'll see the specific factors affecting your score so you know what to work on before you apply.
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About the author
Tim Maxwell
Tim Maxwell is a former television news journalist turned personal finance writer and credit card expert with over two decades of media experience. His work has been published in Bankrate, Fox Business, Washington Post, USA Today, The Balance, MarketWatch and others. He is also the founder of the personal finance website Incomist.
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