By George A. Downey

For generations, many homeowners followed a familiar financial philosophy: work hard, pay off the mortgage, preserve the home, and leave it untouched for as long as possible. Home equity was viewed as something to protect – not as a financial resource to use during retirement.

That philosophy deserves respect. It helped many families build security and create an inheritance for future generations. However, the financial circumstances facing today’s older homeowners are changing so significantly that some long-held assumptions may deserve a thoughtful second look.

We are experiencing two developments at the same time. First, home values – and therefore the amount of wealth held in home equity – have increased substantially in many communities. Second, older homeowners are confronting growing pressures on their monthly cash flow and available savings.

The cost of food, utilities, insurance, home maintenance, property taxes, transportation, healthcare and caregiving has increased. Many retirees are living longer than previous generations and must make their savings last for an uncertain number of years. Others are helping children or grandchildren, managing unexpected medical expenses, or trying to make their homes safer and more suitable for aging in place.

These pressures can create an unusual financial imbalance. A homeowner may have substantial wealth invested in the home but limited income or accessible savings available to meet everyday needs. In other words, someone can be “house rich” while still experiencing real concerns about cash flow and liquidity.

Liquidity simply means having money available when it is needed. A home may represent considerable personal wealth, but that wealth generally cannot be used to pay a medical bill, replace a roof or supplement monthly income unless the homeowner sells, borrows against the property, or uses another home-equity strategy.

This does not mean every older homeowner should use home equity. It does mean that home equity should no longer be automatically excluded from a complete retirement-planning discussion.

For those who wish to remain in their homes, the important question may be changing from “How can I avoid touching my home equity?” to “Could some careful use of my housing wealth improve my financial security, independence or quality of life?”

Depending on individual circumstances, the possibilities could include refinancing, a home-equity loan or line of credit, downsizing, selling and purchasing a more suitable home, or considering a reverse mortgage. Each choice has different qualifications, costs, risks and long-term consequences. Some alternatives require monthly payments, while others may reduce the equity remaining in the home. The appropriate answer will depend on the homeowner’s age, income, health, property, family considerations and future plans.

The purpose of reconsidering home equity is not to encourage borrowing or promote one particular financial product. It is to encourage informed planning. A decision to preserve all available equity may be entirely appropriate – but it should be an intentional decision based on present circumstances rather than an automatic continuation of past assumptions.

Older homeowners may also want to reconsider what financial security means to them. Is the primary objective to leave the home or its full value to heirs? Is it to remain independent, comfortably and safely, for as long as possible? Is it to maintain an emergency reserve, reduce financial anxiety, pay for care, or protect other investments from being depleted too quickly?

There is no single correct answer. Family members may have different expectations, and emotional attachment to the home can be powerful. That is why these conversations should occur carefully, before an urgent need or financial crisis limits the available choices.

A good starting point is to list current income, regular expenses, savings, debts, anticipated home repairs, healthcare needs and personal goals for the coming years. Homeowners should then discuss the alternatives with trusted family members and qualified financial, legal, tax, and mortgage professionals. Independent counseling may also be appropriate before making a significant decision.

Most importantly, homeowners should ask questions until they understand how each choice could affect monthly cash flow, ownership responsibilities, taxes, public benefits, estate plans, and the equity that may remain in the future.

The world in which earlier retirement traditions were formed is not the same world older homeowners face today. Longer lives, higher costs, greater care needs, and unprecedented amounts of housing wealth have changed the financial landscape.

The home should still be respected as a source of shelter, stability and personal meaning. But for some people, it may also be an overlooked resource that can support the very purpose for which it was built: a safer, more secure and more independent life.

When circumstances change, thoughtful people reconsider their assumptions. And sometimes, when we change the way we look at our home, the financial possibilities we see can change as well.

About the Author: George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey at 781-843-5553 / Cell 617-594-3666 / gdowney@thefederalsavingsbank.com, www.thefederalsavingsbank.com/georgedowney