When you own a home with a traditional mortgage, you gain equity over time as you pay off the loan. What’s equity? Home equity is the difference between what your home is worth, its appraised value, and any debt you have from mortgages against the home. For example, if you own a home that’s worth $500,000 in today’s market, and owe $50,000 on your mortgage, you have a home equity that’s worth $450,000. If you’re like most Americans, this amount of equity makes up much of your net worth, and as you reach retirement age you may wish to tap into this equity to supplement your fixed income.
Although you can sell your home to tap into this equity, selling your home doesn’t make sense if you don’t want to move. And other options, like taking out an equity loan or obtaining an equity line of credit, can be difficult to obtain. For those who don’t want to put their home on the market or deal with the hassle of obtaining an equity loan or equity line of credit, a reverse mortgage is a great alternative.