3 ways retirees can tap into their home equity

Here are the pros and cons of three common ways to tap your home equity: a reverse-mortgage loan, a home-equity line of credit, and a cash-out conventional mortgage refinancing

Retirees may need an extra infusion of cash for a variety of reasons.

They could have an unexpected hospital visit, want to refurbish their home, pay down credit-card debt, be ready for a vacation or have some other expense.

They often tap the equity they have in their home to get additional funds.

Three common ways to do this include taking out a reverse-mortgage loan, obtaining a home equity line of credit or applying for cash-out conventional mortgage refinancing.

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Bankrate asked financial experts about the pros and cons of each method. When you compare your situation to the possibilities and requirements, you’ll determine which option works the best for you.

Request a reverse mortgage loan

Different types of reverse- mortgage loans exist, but to make this simple we are talking about the most popular — a home-equity conversion mortgage, or HECM. The Federal Housing Authority’s reverse- mortgage loan program makes HECMs available through lenders.

“It’s a way for people 62 years of age and older to access some of the equity they’ve earned in their home without selling the house,” says Laura Kiel, of Kiel Mortgage in Renton. “You can receive your funds as a lump sum at closing, paid to you in equal amounts each month, in a line of credit available to you or a combination of all three.”

If you choose a home- equity line of credit, that money increases over time, she says.

Out-of-pocket fees — including closing costs, an appraisal and other charges — vary by mortgage company, but the average is around $700, Kiel says. There’s also mandatory counseling, which requires a fee, to make sure you completely understand the loan and its terms. That fee usually runs $100 to…

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