Smart Ways for Seniors to Tap Home Equity

Advice and decision-making tools from the National Council on Aging.

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Home equity is a major financial asset for older homeowners, and the only sizable asset for many of them. With home prices continuing a five-year plunge, many seniors have growing concerns about what to do about not only their homes, but their overall retirement plans. A new website set up by the National Council on Aging (NCOA) is designed to deal with these issues.

[See 10 Ways Your Home Can Pay You Money.]

"For many middle-income families, home equity is their most valuable asset," says Barbara Stucki, vice president for home equity at NCOA. Home Equity Advisor is the name of the group's new initiative. Stucki says it's designed to centralize the extensive information, expert advice, and decision-making tools that will help consumers make informed choices about their homes.

"What we're seeing from the reverse mortgage world is that people are in a lot of debt," she says. "A lot of people are thinking about trying to tap the equity in their home, or perhaps downsize to a smaller home to save money ... Our big concern is that if people do tap the equity in their home that they have access to a broad range of possible solutions and not just a single option."

At the same time, there is a broad range of home-related issues that go beyond accessing equity. NCOA has provided information that aims to help people with aging, health, home location, among other things.

"It's not just a question of making a rational economic decision," Stucki observes. "One of the challenges of home equity is that there are emotional decisions associated with it. A house is your home, after all. Oftentimes, people tend to wait [to make a decision] because they are overwhelmed. We hope this will help them so that they can plan before it's a crisis."

[See Do You Face 'Money Death' in Old Age?]

The site has a Quick Check tool that allows users to fill out an online questionnaire about their housing-related needs or problems. Based on their answers, the site can return information and advice that is tailored to a specific situation.

Home Equity Advisor also offers information aimed at helping people with four major objectives. In each of the four areas, there is additional information on common questions and objectives that consumers might have:

1. Stay and tap home equity

Take out a home equity loan

Refinance mortgage

Consider a reverse mortgage

Use equity sharing

Use home equity to pay off credit card debt

Build a secondary dwelling unit

Live with family

Make home repairs

Modify my home

[See Why Reverse Mortgage Delinquencies Are Extensive.]

2. Sell and move

Buy a new home

Find a new community lifestyle

Rent a new home

Move to assisted living

Stay in a nursing home

3. Strategies to stay in your home longer

Prepare for natural disasters

Avoid home equity scams

Maintain my health

Stay active

4. Preserve home equity and access other resources

Share housing

Increase income through employment

Get financial help from family

Consider public programs

Put my house in a trust

"The reality is that a lot of times, people just look at a house as a place to live or think of their equity as simply a mortgage," Stucki says. "We have to think more strategically about how to draw down that asset."

And right now, she observes, the options for doing so are limited. NCOA would like to see "the financial services industry develop more innovative products" involving home equity. One example Stucki cited would be a more targeted product that ties the use of home equity funds to a single spending need, such as paying for long-term care expenses.

NCOA says Home Equity Advisor was developed with funding from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.

Twitter: @PhilMoeller