Kiplinger’s Personal Finance: Retirees, tap home equity for extra income | Business News

With this, the existing mortgage is replaced with a new, larger one that reflects the…

With this, the existing mortgage is replaced with a new, larger one that reflects the home’s current appraised value.

Lenders will let you borrow up to 80{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} of your home’s value, including the new mortgage and the cash you take out. Interest rates on a cash-out refi are typically about a quarter-point higher than rates for a traditional refi.

Borrow with a home equity line of credit: A HELOC is a revolving line of credit that you can tap whenever you need money. The rate is typically based on the prime rate plus a couple of percentage points.

HELOCs provide an initial withdrawal period — usually 10 years — when you can borrow up to your limit.

During that time, you may choose to make a minimum payment or an interest-only payment if you qualify.

As you repay principal, your available credit is replenished. After the draw period ends, you must begin making principal-and-interest payments, typically over 10 to 20 years. Closing costs for a home equity loan or line of credit run about 2{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} to 5{a25bda0f8ab6dac90e68079d6f038584ef6ac53f1f4621de3ad526e35cd6c0d6} of the loan amount.

Take out a reverse mortgage: A reverse mortgage allows people 62 and older to convert home equity into a lump sum or a line of credit.

Instead of repaying the loan monthly, your withdrawals and interest on them accrues until the loan is due. You don’t have to repay the loan as long as you live in the home, but you will pay insurance and taxes.