How to Release Equity From Your House: Methods, Costs, and Taxes

To release equity from your house, you borrow against the difference between what your home is worth and what you still owe on it, using one of three main products: a reverse mortgage, a home equity loan, or a home equity line of credit (HELOC). Each has different age rules, repayment structures, and costs. The right fit depends on whether you’re 62 or older, how much equity you’ve built, and whether you can comfortably make monthly loan payments.1Federal Trade Commission. Reverse Mortgages

The Three Ways to Tap Your Equity

A reverse mortgage, most commonly the federally insured Home Equity Conversion Mortgage (HECM), lets homeowners aged 62 and older convert part of their equity into cash without making monthly loan payments. The balance grows as interest accrues, and nothing is due until the last borrower dies, sells the home, or moves out permanently.1Federal Trade Commission. Reverse Mortgages Some private (proprietary) reverse mortgages are available to homeowners as young as 55, though those aren’t federally insured and may carry different terms.

A home equity loan gives you a fixed lump sum at a fixed interest rate, repaid in equal monthly installments over a set period, typically 5 to 30 years. A HELOC works more like a credit card: you get a revolving credit line to draw from as needed, usually at a variable rate. Both require regular monthly payments, both are open to homeowners of any age, and lenders generally expect you to keep at least 20 percent equity in the home after borrowing.1Federal Trade Commission. Reverse Mortgages

If you’re under 62 and can handle a monthly payment, a home equity loan or HELOC is usually the simpler route. If you’re 62 or older and want to stop making a mortgage payment, a reverse mortgage is the product built for that goal, and most of what follows applies to it because it carries the most regulation and the biggest long-term consequences.

Who Qualifies

For a HECM, you must be at least 62. The home must be your principal residence, meaning you live there most of the year. Investment properties and vacation homes don’t qualify.2Consumer Financial Protection Bureau. Can Anyone Take Out a Reverse Mortgage Loan You also cannot have any delinquent federal debt, such as unpaid taxes.1Federal Trade Commission. Reverse Mortgages

You either own the home outright or have paid it down enough that the reverse mortgage proceeds can clear the remaining balance at closing. The reverse mortgage lender has to sit in the first lien position, so any existing mortgage gets settled out of the loan before you see a dollar.

Eligible properties include single-family homes, two-to-four-unit buildings where you occupy one unit, HUD-approved condominiums, and manufactured homes that meet FHA requirements. The property has to meet FHA safety and structural standards. Homes in flood zones may face additional insurance requirements or stricter review during the appraisal.

For 2026, the maximum home value that counts toward your HECM calculation is $1,249,125.3U.S. Department of Housing and Urban Development. HUDs Federal Housing Administration Announces 2026 Loan Limits Value above that cap doesn’t increase what you can borrow.

Home equity loans and HELOCs don’t come with an age minimum, but lenders will look at your credit, your income, and the equity cushion left in the home after the new loan. The 20 percent rule is the common benchmark.

The Counseling Step for a Reverse Mortgage

Before you can even apply for a HECM, federal rules require a session with a HUD-approved counselor.4eCFR. 24 CFR 206.41 – Counseling The lender has to give you a list of approved agencies at first contact. A non-borrowing spouse or co-owner who won’t be on the loan must attend too. The counselor explains how the loan works, the payment options, the costs, and the effect on your estate, and screens you for public benefits that might cover your needs without borrowing. You get a certificate at the end, which the lender needs with your application. There is an upfront fee, though borrowers with income under 200 percent of the Federal Poverty Guidelines can often defer payment until closing.

How You Receive the Money

HECM borrowers pick from several payout structures, and the choice has real financial consequences:5Consumer Financial Protection Bureau. How Much Money Can I Get With a Reverse Mortgage Loan and What Are My Payment Options

  • Lump sum, at a fixed interest rate. This is the most expensive option over time because interest accrues on the full balance from day one, and the total available is often lower than under the other options.
  • Line of credit, at an adjustable rate. You draw as needed and pay interest only on what you’ve actually used. Unused credit grows over time, increasing what’s available later.
  • Monthly payouts, at an adjustable rate. A tenure payout runs for as long as you live in the home; a term payout runs for a set number of years you choose.
  • A combination of a line of credit with monthly payouts, giving you both steady income and a reserve.

Choosing a line of credit or monthly payouts over a lump sum generally costs less, because interest only builds on money you’ve actually received.

A home equity loan pays you a single lump sum at closing. A HELOC gives you a draw period during which you borrow against the line as needed, followed by a repayment period.

What It Costs

Reverse mortgages carry several layers of fees that reduce the net amount you receive:

  • Origination fee. HUD caps this at the greater of $2,500 or 2 percent of the first $200,000 of your home’s appraised value plus 1 percent of the amount above $200,000, with an overall maximum of $6,000.
  • Upfront mortgage insurance premium. FHA charges 2 percent of the maximum claim amount at closing. This insurance protects both sides: your payments continue even if the lender goes out of business, and the loan balance can never exceed the home’s value.
  • Annual mortgage insurance premium of 0.5 percent of the outstanding balance each year, added to the loan.
  • Appraisal fee, typically $300 to $425 for a standard single-family home, paid upfront.
  • Closing costs: title search, title insurance, recording fees, and other third-party charges that vary by location.

You can roll these costs into the loan rather than pay out of pocket, but doing so reduces the equity available to you and increases the interest that will accrue over the life of the loan.

After signing, federal law gives you three business days to cancel without penalty, a protection known as the right of rescission.6Consumer Financial Protection Bureau. Regulation Z 1026.23 – Right of Rescission The right runs until midnight of the third business day after closing.7Consumer Financial Protection Bureau. Can I Ever Waive My Right to Rescind on My Mortgage Loan

Taxes and Benefits

Reverse mortgage proceeds are not taxable income. The IRS treats the money as a loan advance, not earnings, so a lump sum or monthly payments won’t push you into a higher bracket or create a federal income tax bill.8Internal Revenue Service. For Senior Taxpayers

Interest generally isn’t deductible while it accrues. You can only deduct it once it’s actually paid, which usually happens when the loan is paid off in full, and only if you used the proceeds to buy, build, or substantially improve the home securing the loan. If the money went to living expenses, medical bills, or anything else, the interest is not deductible.9Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction

Even though proceeds aren’t income, they can still affect means-tested benefits like Supplemental Security Income (SSI) and Medicaid, which impose strict asset limits. For SSI in 2026, the cap is $2,000 for individuals and $3,000 for couples.10Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet Money sitting in your account at the end of a reporting month counts as a resource, regardless of where it came from. A lump sum is the riskiest option here, because the full amount lands at once and can push you over the limit. Drawing through a line of credit or monthly payouts, and spending the money before each month ends, helps keep countable assets below the threshold. If you rely on these benefits, raise the timing issue with your counselor before you pick a payout.

What You Still Owe as a Homeowner

A reverse mortgage ends your monthly mortgage payment but not your responsibilities. You must continue paying property taxes, homeowners insurance, flood insurance where applicable, and any homeowners association fees, and you must keep the home in good repair. Falling behind on any of these can put the loan into default and lead to foreclosure, even though you aren’t making a monthly loan payment. If the servicer notifies you of a needed repair, you generally have 60 days to begin the work.11Consumer Financial Protection Bureau. You Have a Reverse Mortgage – Know Your Rights and Responsibilities

The home must remain your principal residence. Moving into a nursing home or long-term care facility for more than 12 consecutive months typically triggers the loan becoming due and payable.

What Happens to the Home Later

When the last surviving borrower dies, the reverse mortgage becomes due. Within 30 days, the lender notifies the estate or heirs and has the property appraised. Heirs then choose from three options:12Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die

  • Pay off the loan and keep the home, by refinancing or using other funds.
  • Sell the home. If the loan balance exceeds the value, heirs can sell for at least 95 percent of the current appraised value and the mortgage insurance covers the rest.
  • Walk away. Because HECMs are non-recourse loans, neither you nor your heirs will ever owe more than the home’s appraised value, even if the loan balance has grown past it.

If Your Spouse Isn’t on the Loan

If a spouse is under 62 and left off the loan, HUD rules offer some protection, but only on conditions. An eligible non-borrowing spouse can remain in the home after the borrower dies, provided they were married to the borrower when the loan was taken and the property is still their principal residence.13eCFR. 24 CFR Part 206 Subpart B – Eligible Borrowers They also have to obtain legal ownership of the property, or another legal right to remain for life, and keep up with the taxes, insurance, and maintenance the borrower was responsible for. A non-borrowing spouse who doesn’t meet those requirements gets no deferral: the loan becomes due and payable when the borrower dies.