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Home Equity HELOCs

HELOCs for Seniors

If you’re looking to supplement your retirement income or pay for a major expense, you could tap into your home equity with a home equity line of credit (HELOC). A HELOC is a flexible form of financing that lets you borrow on an as-needed basis and only pay interest on the amount you withdraw. 

HELOCs can allow seniors to boost their incomes, pay for home improvements, or ease financial concerns during retirement—but they’re not the best choice in every situation. Read on to learn more about HELOCs for seniors, including their pros and cons. 

How can seniors use a HELOC? 

If you’ve been paying off your mortgage for a long time, you likely have significant equity in your home. You can leverage this equity to borrow money in the form of a HELOC. HELOCs are a revolving form of credit that often have variable interest rates. You can borrow from your HELOC during a draw period—typically 10 years—and make full payments for up to 20 years afterward. 

Because they’re secured by your home, HELOCs can have competitive interest rates and offer an affordable way to borrow money. However, if you borrow more than you can afford to pay back, you risk foreclosure on your home. 

You can use HELOC funds to pay for a variety of expenses. Here are a few ways you might use one as a senior: 

  • Pay for home improvements: Seniors might use a HELOC to pay for home renovations, such as remodeling a kitchen or building an addition. These home improvements may increase the value of your home. Plus, you might qualify for a tax deduction if you use a HELOC to “substantially improve” your home and itemize rather than use the standard deduction when you file your taxes. Seniors may also use HELOC funds to install home safety features to make their homes more comfortable as they age in place, such as safety rails, stairlifts, or better lighting. 
  • Avoid dipping into your retirement savings: A HELOC can help you supplement your retirement income if you don’t want to withdraw too much from your accounts. For example, you may want to hold off on a substantial withdrawal if markets are down and you want your savings to recover. Retirement withdrawals can also trigger a higher tax bill and cause you to miss out on gains in the market. Using a HELOC could be a more affordable alternative in some circumstances. 
  • Pay off debt: If you carry high-interest debt, you could consolidate it with a HELOC. HELOCs may offer lower rates than credit cards or personal loans, allowing you to save money on your debt, pay it off in one place, and potentially get out of debt faster. 

However, using a HELOC to fund an unaffordable lifestyle or pay for nonessential expenses might make less sense. A HELOC can supplement your income in retirement, but it’s still a form of debt you must pay back, along with interest, fees, and closing costs. 

Best HELOCs for seniors

You can find HELOCs from multiple banks, credit unions, and online lenders. Before picking a lender, shop around and compare your options to find a HELOC offer with the lowest interest rates and fees.

For seniors, we recommend the following three HELOC lenders for their competitive rates, accessible customer service, fast funding times, and other features. Read on for the details about each lender and its HELOC for seniors. 

LenderRates (APR)Best for 
Figure7.85%17.20% fixedOverall
Hitch8.25%13.00%Accessing up 95% of equity
Bethpage FCU12-month introductory rate starting at 6.99% for VantageScores of 720 and up, with variable post-introductory rates starting at 8.50%Large HELOCs 

Figure: Best overall

LendEDU rating: 4.9 out of 5

  • Competitive fixed rates: 8.35%16.55% APR
  • Quick, hassle-free process
  • Must borrow 100% of your credit line (minus fees) at closing

Figure is our top choice for seniors looking to tap their home equity due to its streamlined, efficient process and favorable terms. Offering fixed interest rates, Figure ensures stability and predictability in repayment schedules, which is crucial for retirees on fixed incomes. The ability to check rates without affecting your credit score and the option for no in-person appraisal simplifies the application process. 

Figure can deliver funding in as few as five days. Borrowers must access 100% of their funds at closing, minus an origination fee of up to 4.99%. Because of this, a Figure HELOC is best for borrowers who plan to use their full credit line right away. The ability to redraw funds up to 100% offers flexibility to manage unexpected expenses. 

However, Figure’s services are not available in Delaware, Hawaii, Kentucky, New York, or West Virginia. Loan amounts range from $20,000 to $400,000, accommodating a wide range of financial needs. Figure stands out for its unrivaled commitment to speed and convenience. It features an entirely online process, making it a perfect choice for tech-savvy seniors.

Bethpage FCU – Best for large HELOCs

LendEDU rating: 4.5 out of 5

  • 12-month intro rate of 6.99% APR for VantageScores of 720 and up; then a variable rate
  • Borrow $10,000 – $1 million
  • No application, origination, or appraisal fees

Bethpage stands out as the best credit union choice for seniors seeking a HELOC, especially for those prioritizing low costs and flexibility. Bethpage accommodates a broad range of financial needs, from minor renovations to major living expenses. A standout feature is the absence of application, origination, and appraisal fees, coupled with no closing costs, which can reduce the upfront expenses associated with securing a HELOC.

Bethpage offers qualified borrowers an appealing 12-month fixed introductory rate, allowing for predictable repayments at the beginning of the loan term. The option to convert some or all of the HELOC to a fixed-rate loan at no extra cost provides further financial stability—a crucial consideration for retirees managing fixed incomes.

The process from application to closing can take six to 10 weeks, which is slower than Figure and Hitch, but the savings and benefits may outweigh the wait for many. Note that to qualify for the low fixed introductory rate, you must withdraw a minimum of $25,000 at closing. Overall, Bethpage offers a compelling choice for seniors looking for comprehensive features and cost-effective borrowing from a trusted credit union.

Hitch – Best for accessing 95% of equity

LendEDU rating: 4.3 out of 5

  • Assigned a dedicated loan officer
  • 8.25%13.00% rates (APR)
  • Must borrow 100% of your credit line (minus fees) at closing

For seniors looking to maximize their home equity draw, Hitch offers the ability to access up to 95% of your home’s equity. This can be advantageous for those with significant equity and a need for substantial funds. Hitch stands out for a generous lending cap of $500,000. Every borrower is assigned a dedicated loan officer, providing a personalized touch that can be reassuring and helpful through the borrowing process.

Hitch requires borrowers to have a minimum credit score of 640 and residency in California, Colorado, Connecticut, Delaware, Florida, Illinois, Maryland, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, South Carolina, Virginia, Washington, or Washington, D.C.

One notable limitation is the requirement to withdraw the entire credit line at closing, minus any applicable fees, which may not suit everyone’s financial strategy. However, Hitch could be a robust solution for those in eligible states who need to access a large portion of their home equity.

How to qualify for a HELOC as a senior

It’s illegal for lenders to deny credit based on age, so that shouldn’t stand in the way of HELOC approval as long as you meet certain requirements to qualify, such as: 

  • Have sufficient equity in your home: Equity is the difference between your home’s current value and your mortgage balance. You’ll generally need at least 15% equity in your home to qualify for a HELOC. 
  • Meet credit requirements: Lenders review your credit score and history to assess your risk as a borrower. The higher your credit score, the better your chances of qualifying for a HELOC and getting a competitive rate. 
  • Show a source of income: You’ll also need to show that you have sufficient income to pay back your HELOC. If you’re working, you could show income from an employer or client. You may show Social Security benefits or retirement income if you’re retired. 
  • Have an acceptable debt-to-income ratio (DTI): Your DTI compares your monthly income with your monthly debt payments. Many lenders want to see a ratio no higher than 43%, but a DTI lower than 36% is ideal. 
  • Provide required documentation: When you apply for a HELOC, you’ll provide plenty of documentation, such as W-2s, benefits statements, and bank statements. 
  • Have your home appraised: To assess your home’s current value, you’ll need a recent appraisal, which could cost around $500. 
  • Cover closing costs: Prepare to cover closing costs for your HELOC, which may equal 2% to 5% of your loan amount. You might be able to choose between paying these costs upfront or rolling them into your loan. 

Pros and cons of using a HELOC as a senior 

Using a HELOC as a senior has both advantages and potential downsides. Consider the following pros and cons before you apply. 

Pros

  • Competitive interest rates

    HELOCs can have lower interest rates than other types of financing, such as credit cards or personal loans, making them an affordable borrowing option.

  • Flexible borrowing and repayment

    Unlike an installment loan, which offers a lump sum upfront, a HELOC may allow you to withdraw money as needed. For example, you might be able to borrow from your HELOC over a decade and spread out full repayment over a 20-year term.

  • Potential tax deduction

    If you itemize your deductions when you file your taxes, you can deduct the interest you pay on a HELOC if you use it to “buy, build, or substantially improve” your residence. (This isn’t an option if you use the standard deduction.)

  • Can protect your retirement savings

    Withdrawing from your retirement savings could be expensive if the market is down or if doing so would bump you into a higher tax bracket.

Cons

  • Uses your house as collateral

    HELOCs are secured by your home, so you risk losing your house if you can’t repay your HELOC. Be wary of borrowing against your home equity if you don’t have a plan for repayment or are prone to overspending.

  • Reduces your equity

    A HELOC is a type of second mortgage. By borrowing a HELOC, you’ll owe more debt on your home and hold less equity as a result. That could mean a smaller return on investment if you choose to sell your home.

  • May pass the debt on to your heirs

    If a HELOC borrower passes away, their debt may go to the estate, and their heirs will need to repay it. Some lenders may require immediate repayment of the HELOC.

Our expert’s advice to seniors

Erin Kinkade

CFP®

I typically would not want a senior to obtain a HELOC if they cannot pay off the loan in their projected remaining life expectancy unless they’re using it to renovate their home or make the home more functional as they age in place. If you’re considering the HELOC for a ‘want’ over a need, I would advise against the HELOC and recommend forgoing the purchase or saving for it. If you’re considering the HELOC to pay off credit cards or other personal loans, be sure the HELOC offers a better interest rate and terms before proceeding. And if in doubt, consult a financial counselor or professional who will help you make decisions with your financial and life goals in mind.

Alternatives to HELOCs for seniors 

Besides the HELOCs, several other financial products could fulfill similar needs, depending on your situation.

Home equity loan

A home equity loan allows you to borrow a lump sum at a fixed rate, which you might prefer if you need a substantial amount upfront. However, it lacks the flexibility of a HELOC that allows you only to draw the funds you need.

Reverse mortgage

A reverse mortgage might be a viable option for seniors looking to tap into their equity without a monthly repayment obligation. While this can provide cash flow during retirement, it can also erode the equity you have available for heirs.

Cash-out refinance

A cash-out refinance involves replacing your mortgage with a new one and taking the difference in cash. This can be beneficial if today’s rates are lower. However, it often comes with increased closing costs.

Home sale-leaseback

A home sale-leaseback is a less unconventional alternative that allows you to sell your home but continue living there by renting it back from the buyer. This could be beneficial if you want to extract equity but maintain the residence. However, it means relinquishing ownership.

Recap: Best HELOCs for seniors

LenderRates (APR)
Figure7.85%17.20% fixed
Hitch8.25%13.00%
Bethpage12-month introductory rate starting at 6.99% for VantageScores of 720 and up, with variable post-introductory rates starting at 8.50%