The majority of Americans who are of retirement age, or are approaching retirement age own a home – but that doesn’t necessarily mean the house is paid for. While some people may own a home that is paid off in full, many others can expect to have a mortgage into their 70s and beyond. The Social Security Administration reports that 80% of those near retirement have $150,000 in debt with $100,000 plus being their housing costs.

However, even those who own their homes outright may not be planning to stay there after retirement. Many people choose to tap into the equity in their primary residences to purchase a second home they plan to use after retirement. In these cases there may be a significant mortgage on the retirement property.

Should you tap into your home’s equity to buy a retirement home?

There are three ways homeowners can tap into their home’s equity to fund the purchase of a retirement property: a home equity loan, a home equity line of credit or a cash-out refinance. However, homeowner’s should carefully consider the risks and benefits of each option.

Using your home’s equity to purchase a second property can offer many benefits. Your lender may give you more beneficial terms than a first-time home buyer, including lower interest rates and other reduced costs. However, there are also drawbacks. Using the equity in your primary residence puts that home at risk. Your monthly mortgage payments will increase and if you fall behind on payments, you could lose your primary home to foreclosure.

Using other retirement income to purchase a home

With the stock market and other similar investment options proving to be somewhat reliable, some people are choosing to cash in their retirement incomes, such as their 401K plans and pensions, and are putting in into their retirement home. Experts caution against going too far with such a plan, because in most cases a home is not something that is designed to generate income. Even when a home’s mortgage is paid off there are still many expenses, such as homeowner’s insurance, property taxes, utilities and general upkeep.

When determining how to fund the purchase of a retirement property, it is important to consider all of your options and discuss your strategy with a financial planner and an attorney.