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Getting a HELOC before retiring
Old 05-30-2015, 07:20 AM   #1
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Getting a HELOC before retiring

Greetings,

New to the forum and this web site. I did several searches on this subject, but didn't find anything that answered my question.

My wife and I will be 55 next year, and plan to quit our regular jobs, to pursue our hobbies, and other interests. We started working with a CFP in March, and one of their recommendations was to open a HELOC line of credit while my wife and I are both still working. Our house was paid off in March.

The HELOC would only be used for emergencies. We have enough in cash and investments to carry us through until SS and medicaid and beyond. Plus @ age 65, my wife and I have a small pension that will be able to start drawing on, and we have excellent credit, and no debt.

Our CFP is recommending to shop around for the best interest rates, and to get whatever the largest line of credit is being offered
Is there any downside to opening a HELOC line of credit ?
Has anyone else done this ?
Any ramifications if we sell our home or buy a new home to downsize after we open the HELOC ?

Thanks in advance for the advice. I've enjoyed reading some of the posts. Lots of good info here.
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Old 05-30-2015, 08:13 AM   #2
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Sure, not a bad idea I suppose. It's quick and easy access to money and if interest rates are low it may be more attractive than drawing on a high performing portfolio. You only pay if you draw on the credit line, except for maybe an annual maintenance fee ($30-$50). Also, most HELOCs have no closing costs (at least in my part of the world) and the paperwork is pretty easy as compared to a primary mortgage. Only potential downside that I can think of is most have a hefty fee if you close the account within a certain period (usually 2 or 3 years) so if you think you might be downsizing soon it could cost you $250-$500.
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Old 05-30-2015, 08:27 AM   #3
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I actually retired in April of 2013 and took out a HELOC in May, as we were contemplating downsizing and I wanted to have access to cash for some home improvements and to use as a down payment on a new house if needed. I can't remember exactly what my line of credit was, but believe it was $250-300K.

I wanted this as most of our $ were in IRA assets. It worked out well, as I used it as planned and then paid it off after we sold our home which happened very quickly. Cost me next to nothing due to the short period of time that I drew from it. The only possible negative I can see is that it might impact your credit if you went to finance some other purchase like a car. Also, it would probably be better to do this before you retire. I got mine after, because I had some big $s invested with bank that gave me the HELOC.
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Old 05-30-2015, 09:02 AM   #4
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Be careful.


I had my ID stolen and 180K wired out of a HELOC to a bank in the UK.


Bad guys still at large.
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Old 05-30-2015, 09:08 AM   #5
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I think lining up a HELOC is a good idea if the costs of getting the line are reasonable. I don't see any downsides, though Big Hitter's scenario is a bit scary.
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Old 05-30-2015, 09:11 AM   #6
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Originally Posted by Big_Hitter View Post
Be careful.


I had my ID stolen and 180K wired out of a HELOC to a bank in the UK.


Bad guys still at large.
True, but that crime is not restricted to HELOCs alone.
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Old 05-30-2015, 09:15 AM   #7
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Originally Posted by DFW_M5 View Post
True, but that crime is not restricted to HELOCs alone.
heloc is a low hanging fruit for this...just sayin
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Old 05-30-2015, 10:18 AM   #8
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I opened a HELOC just after retiring (but we had rental and DH's SS income to show.) Like you, I had previously paid off my home.

I don't plan to touch it. But it's there for two reasons: Emergency cash flow; Income smoothing. The income smoothing is so we don't run into a situation where we have to draw too much from IRAs (if we have a big spend one year) and lose our ACA tax subsidy.

If I don't use it and don't close it within a few years, then there is zero expense.
As I said - I don't plan to use it - but it's there just in case.

Possible downsides - some HELOCS will charge you if you close them before a specific time... So if you plan on selling/moving - that should factor into your decision.
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Old 05-30-2015, 11:43 AM   #9
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We opened a HELOC just prior to retiring for emergency funds. 10 years later and we've never used it - for an emergency.

We have used it several times to save us from having to move to a
higher tax bracket via a more than planned IRA withdrawal, spreading the cost of a big expense over two or three years.
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Old 05-30-2015, 01:31 PM   #10
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I also opened a HELOC for $100K before retiring but never tapped into it. After 5 years I was going to close it but noticed it disappeared from my online accounts. When I called the credit union they had no record of it, even when I provided the account number.

They then had to research offline to find it; apparently their system would remove inactive accounts from the online system after five years and the regular customer service reps only had access to the online system. Those inactive accounts would print to a paper report. One they found it, they were able to close it and release the lien from my property.

So, if you get one and don't use it, just keep an eye on it.
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Old 05-31-2015, 11:16 AM   #11
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Quote:
Originally Posted by pb4uski View Post
I think lining up a HELOC is a good idea if the costs of getting the line are reasonable. I don't see any downsides, though Big Hitter's scenario is a bit scary.

I still use credit and strongly considered one. But I just could not get the math to work for me and I still have a mortgage and itemize. Floating credit card access checks at 2-3% upfront 0% interest for 15-18 months is always cheaper and no paperwork for me anyways.


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Old 05-31-2015, 03:22 PM   #12
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I appreciate this thread. We are retiring at the end of the year and plan on moving. We were wondering how we would come up with a down payment before we sell our current home. A HELOC would be perfect for this scenario. We are trying to avoid moving twice. Good idea!
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Old 06-03-2015, 11:33 AM   #13
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Thanks for all the great advise here. Much appreciated !
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Old 06-03-2015, 11:47 AM   #14
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I took out an HELOC back in 2005. The bank took care of all the closing costs, so I had to pay nothing out of pocket. Annual fee was $50. The rate was Prime + 0.25%. I think it started off around 5.5%, but crept as high as 8.5% back before the Great Recession made everything crash. Been at 3.5% since 2009.

However, the draw period of 10 years ended early this year, and it reset to something I'm not so crazy about...a 10 year mortgage, at 4.99% fixed. I've thought about refinancing, but am a bit on the fence. Even though the payment is pretty high, it's mostly principal so the balance is coming down fast.

It was nice while I had it, though. When rates were low I'd pull out money and invest, or do other things with it (new HVAC for the house, some work on my antique cars, buying a new truck, etc), and when the rates went up, I'd pay it down more aggressively. And, if I had big stock market gains I'd cash in a bit to pay down, as well. So, I enjoyed it while I had it.
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