Before You Sell: Could Your Home Equity Help You Age in Place?

As we get older, the home we’ve loved for decades can sometimes stop working quite as well for the life we’re living today.

Maybe there are stairs that have become more difficult to navigate. The bathtub that once seemed perfectly functional may now feel like an obstacle. The kitchen needs updating. The roof is getting older. Or perhaps you’re beginning to think about what would happen if you eventually needed some help at home.

When these concerns start adding up, many homeowners naturally arrive at the same conclusion:

“Maybe I should just sell and move.”

But selling isn’t always the only — or even the best — solution.

I recently had a conversation with a longtime homeowner that illustrates why it can be worthwhile to explore all of your options before putting a home on the market.

When Your Home No Longer Fits Your Needs

The homeowner I spoke with owns her home outright and had been contemplating whether it might make sense to sell and purchase another home that was already better suited for her needs.

But as we talked, something became clear.

She didn’t necessarily want to leave her home.

Her adult children live nearby. She has an established life in the area. And if her home could be renovated to make it safer, more comfortable and more accessible, she would actually prefer to stay.

The issue wasn’t necessarily the house itself.

The house simply needed to change with her.

Her wish list included improvements such as:

• Converting a bathtub into a walk-in shower
• Updating the bathroom and kitchen
• Replacing aging countertops and tile
• Painting the interior and exterior
• Replacing entry doors
• Improving the patio flooring
• Eventually replacing the roof

She estimated that approximately $100,000 could accomplish much of what she wanted.

That led us to a very different conversation.

What If the Equity in the Home Could Pay for the Improvements?

For homeowners age 62 and older who have substantial equity in their homes, a Home Equity Conversion Mortgage (HECM) — the FHA-insured reverse mortgage program — may provide another option.

Instead of selling the home to access the equity, a homeowner may be able to access a portion of that equity while continuing to own and live in the home.

The proceeds could potentially be used to renovate the property for aging in place while also creating an additional financial reserve for future needs.

And unlike a traditional mortgage or HELOC, a reverse mortgage generally does not require monthly principal and interest payments.

That distinction can be especially important for someone living on retirement income.

The homeowner must still meet the obligations of the loan, including paying property taxes and homeowners insurance, maintaining the home, and continuing to occupy the property as a principal residence.

A Reverse Mortgage Isn’t Free Money

This is one of the most important concepts I explain to clients.

With a traditional mortgage, you typically make monthly payments and gradually reduce what you owe.

A reverse mortgage works differently.

If the homeowner chooses not to make payments, interest and applicable mortgage insurance charges are added to the loan balance. As a result, the amount owed generally increases over time.

Homeowners can voluntarily make payments if they choose, but monthly principal and interest payments are generally not required.

That means a reverse mortgage involves a tradeoff:

You are using some of tomorrow’s home equity to improve your financial flexibility and quality of life today.

For the right homeowner, that can be an entirely reasonable trade.

What About the Children’s Inheritance?

This is often one of the first questions I hear:

“But what will happen to the house when I’m gone?”

A reverse mortgage does not automatically mean the children lose the home.

Imagine, for example, that a homeowner accessed $100,000 of equity today.

Over many years, the reverse mortgage balance could grow substantially because of additional advances, interest, mortgage insurance, and other applicable charges.

But the home’s value may also change during that period.

For illustration purposes, suppose that years later:

• Home value: $1,000,000
• Reverse mortgage balance: $400,000
• Remaining equity: approximately $600,000 before selling expenses and other costs

The heirs could generally sell the property, repay the reverse mortgage and retain the remaining equity.

Or, if one of the children wanted to keep the home, they could potentially arrange other financing or use available funds to satisfy the reverse mortgage according to the applicable HECM requirements.

The important point is that the homeowner still owns the home and retains the remaining equity.

Sometimes Preserving Equity Isn’t the Only Goal

This is where I think families should look at the bigger picture.

Many parents instinctively want to preserve every possible dollar of home equity for their children.

That’s admirable.

But those same children may eventually be the ones helping Mom or Dad financially, physically or emotionally if their home and finances aren’t properly prepared for aging.

What if using a portion of the home’s equity today could pay for a safer bathroom, a more functional kitchen, necessary home repairs and potentially provide funds for future in-home assistance?

That could allow a parent to remain independent longer while also reducing some of the future caregiving burden on the family.

In that situation, using some equity isn’t necessarily diminishing a legacy.

It may actually be using the family’s wealth for exactly what it was built for.

Don’t Forget the Cost of Moving

It’s also easy to underestimate how expensive moving can be.

Selling one home and buying another may involve real estate commissions and other selling expenses, moving expenses, repairs, closing costs on the replacement property and potentially a significantly higher property tax obligation.

Then there is the emotional cost of leaving a neighborhood, friends, routines and a home filled with memories.

None of those factors automatically mean someone should stay.

Sometimes moving absolutely is the right decision.

But homeowners should compare the true cost of moving with the cost of modifying the home they already own.

You may discover that investing $50,000, $75,000 or $100,000 into the existing property dramatically changes the equation.

Start With the House, Not the Loan

One suggestion I gave this homeowner was to get actual contractor bids before making any financing decision.

That’s an important step.

Rather than saying, “I think the renovations will cost about $100,000,” determine what they will really cost.

Get bids for the bathroom.

Get a price for the kitchen.

Find out what the roof will cost.

Prioritize improvements between what is necessary for safety and accessibility and what would simply be nice to have.

Once you have real numbers, you can evaluate the financing options intelligently.

Build a Plan for the Next 10-20 Years

Ultimately, this conversation wasn’t really about a reverse mortgage.

It was about a much bigger question:

“How do I want to live during the next chapter of my life?”

For some homeowners, the answer will be to sell, downsize and start somewhere new.

For others, the answer may be sitting underneath their feet in the form of home equity they’ve accumulated over decades.

That equity could potentially help transform an older home into a safer, more comfortable place to live while creating financial flexibility for whatever the future brings.

The important thing is not to assume that selling is your only option.

Before making that decision, look at the entire picture: your home, your family, your finances, your health and mobility needs, your available equity, and most importantly, how and where you want to live.

Sometimes the right home for your next chapter may be the one you already own.

Wondering Whether Aging in Place Could Work for You or Your Parents?

If you or someone you love is 62 or older and owns a home with substantial equity, I’d be happy to help you explore the numbers.

There’s no obligation to move forward with a reverse mortgage. Sometimes my role is simply helping a family compare staying, renovating, selling, downsizing, or using home equity so they can make an informed decision.

Every situation is different, and a reverse mortgage isn’t right for everyone. But before selling a longtime home simply because it no longer fits your current needs, it’s worth finding out whether the home — and the equity you’ve spent years building — could be part of the solution.