I’m 73 years old and have annual health care costs of $27,000 that are emptying my savings — tapping into my home equity is my last resort. How can I do it safely?

An option available to many seniors

The National Council on Aging (NCOA) says that homeowners aged 65 and over have a median home equity of $250,000. A big part of that stems from a recent boost in home values.

As of 2022, the median retirement account balance among Americans aged 65 to 74 was only $200,000, according to the Federal Reserve. Many older Americans might have more home equity than actual savings.

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The safest way to tap into home equity

Since 1990, more than 1.3 million older Americans have taken out a reverse mortgage to tap into their home equity, according to the NCOA. However, reverse mortgages have their drawbacks.

The loans work by becoming payable once a homeowner dies, sells their home or moves. However, there’s a caveat: if you can’t live in your home for more than 12 months due to a medical reason, your loan will be due immediately. If you can't pay it, you lose your home.

A home equity loan or HELOC may be a safer option for tapping into your home equity. But there are drawbacks to consider here, too. With a home equity loan, you will borrow a lump sum of money at a fixed interest rate. The good thing about home equity loans is that your monthly payments are predictable. The bad thing is that if you fall far enough behind, you could risk losing your home as well.

A HELOC, or home equity line of credit, gives you access to a line of credit you can use during a preset window. It may be five years, 10 years or another time frame.

Unlike a home equity loan, the interest rate on a HELOC is variable. This can be problematic because it can result in unpredictable monthly payments. When you’re retired and on a fixed income, that variability could prove dangerous. Similar to a home equity loan, falling behind on HELOC payments could put you at risk of losing your home.

Of course, there’s another option for utilizing home equity: selling your home, downsizing to a less expensive place and pocketing the proceeds. But this requires you to uproot yourself, which may not be ideal. However, if maintaining and covering the costs of your home is causing you to struggle financially, moving to a smaller space may not be such a bad thing.

If you can buy a smaller home outright after selling your current property, you won’t have to worry about owing money. At a time when you’re trying to focus on taking care of your health, one less stressor could be crucial to your health.