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Do we need a HELOC before he retires?
Old 04-13-2017, 09:47 AM   #1
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Do we need a HELOC before he retires?

My husband is still working as we pile up more of a cash buffer. Would it be good to have a HELOC in place as a back-up? Does this need to be done before he stops working?
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Old 04-13-2017, 09:49 AM   #2
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Yes!

While we were able to get one post retirement the value was only 30% of what I could have received when I had a j*b.
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Old 04-13-2017, 09:53 AM   #3
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"Need" is a strong word. But, we thought it was a good idea. In the 9 months before anticipated retirement (when we still have the dual professional incomes), we have refi'd house to long, low rate (rather than pay it off as many would prefer), and set up a 200K HELOC. Both moves were for increasing cash/liquid buffer. Shouldn't need that buffer, but better safe than sorry.
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Old 04-13-2017, 10:04 AM   #4
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Yes, it's wise to do that before you retire.
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Old 04-13-2017, 10:11 AM   #5
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Yes, do it while there is W2 income. Depending on the bank, it will be very cheap to set up and maintain and it is a nice cash cushion to have. For me, it is essentially my "cash reserve" so I have to keep much less of my other assets in cash. Note, there IS an inherent risk that HELOCS can be called/cancelled by the bank for a variety of reasons, but this hardly ever happens if the line is in first position (i.e. no other mortgage on the house).
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Old 04-13-2017, 10:17 AM   #6
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I didn't, but there was a situation a few years ago where I needed about $100K for a few days/weeks where it would've come in handy. I had some funds I could sell with minimal tax impact to supplement my cash buffer so it wasn't a big deal but a HELOC might've been better.
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Old 04-13-2017, 10:47 AM   #7
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Quote:
Originally Posted by 2017ish View Post
"Need" is a strong word. But, we thought it was a good idea. In the 9 months before anticipated retirement (when we still have the dual professional incomes), we have refi'd house to long, low rate (rather than pay it off as many would prefer), and set up a 200K HELOC. Both moves were for increasing cash/liquid buffer. Shouldn't need that buffer, but better safe than sorry.
I agree 100%. I got a HELOC through PenFed in 2013 before retiring and it didn't cost me a dime. It is there in case there is some issue that *might* cause short term cash flow issues. So far, we haven't tapped into though, but it's a good "just in case" source of $$$. And yes, it would be much easier to get while you have W2 income; I think from start to finish, it took about 2 weeks to get mine done.
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Old 04-13-2017, 11:45 AM   #8
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i had a no cost heloc once i think i got it in 2003, wonderful, it was such a great thing, that i went to get another one, i was told i would have to pay the mortgage tax on the entire loan amount that new york had changed the rules and it would cost me over 2% for the loan, it was a no brainer no loan for us. we did use the heloc from 2003 for a gut renovation in 2011, then paid it back with in 2 years
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Old 04-13-2017, 07:25 PM   #9
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Timely post. We were just approved for a HELOC (no fees) this week suggested by our accountant. I was reluctant at first since we have been 100% debt free just since February. But, we have nothing to lose and have several hundred thousand in home equity (yep, house paid off). We plan to downsize our home in the next 4-7 years and our current home needs some repairs (bathroom regut for one). DH doesn't plan to retire for another 3-5 years between ages 62-64. Accountant said it's good to have cash on hand for repairs and the like. While we don't plan on tapping the HELOC for a while, it's good to know it will be there while the paycheck is still coming in.
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Old 04-14-2017, 09:45 AM   #10
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I got one right after I retired but we had some income (rental and DH's SS). I still consider myself debt free since I don't owe anything on it. It's there "just in case". Ours was no fees, no costs. They didn't even charge us for appraisal since we had a paid off house in southern California so our equity was not in question.
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Old 04-14-2017, 11:49 AM   #11
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PenFed only allows max $400k for HELOC line, regardless of the amount of equity.
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Old 04-14-2017, 04:37 PM   #12
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Not sure about other institutions but the draw period is often limited. Mine is limited to a 10 year draw, then it converts. If you have a balance it converts to monthly payments like a mortgage. Or at least mine did. I had one for 10 years and barely used it. I wanted it for the draw...just in case. The draw period was coming to a close so I "closed" that one and did another with the same institution for another 10 year draw period. No fees.
I simply wanted it to function like a line of credit...in case I wanted to pay cash for a car or use it to buy a 2nd place on the water if and when I find what I want and so I would not have to go the mortgage route and pay all those closing costs.

With interest rates rising who knows if this will continue to be a good deal.
Rates on HELOCS follow the prime rate. So expect the interest rate to go up when the Fed raises rates.
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Old 04-14-2017, 05:13 PM   #13
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Thanks for all the great insight on HELOC's Of course we don't anticipate needing it but....it's always good to be prepared
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Old 04-14-2017, 09:16 PM   #14
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Agree with all of these comments. DH & I got a HELOC a couple of years before we retired. Used part of it to fund a remodel and the rest is contingency "just in case". Nice to have as an option if needed.
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Old 04-15-2017, 09:04 PM   #15
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FWIW I got one before I *retired* with a recommendation from a FN planner. Reason being outside of my pension and 401K savings I didn't have much of a safety net. Mine is $150K at 4.24%. I have not drawn on it since ER but if my roof blows off my house I might need to. Ha.
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Old 04-16-2017, 06:39 AM   #16
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We retired in August of 15 and had a 416k HELOC. My original limit was 500k but was suspended in 2008 during the financial crisis without notice. I was informed by Chase, that my current line was expiring and they asked me if we wanted to renew. Long story short, I decided to go with Capital one for the HELOC. I am now into my second month of interrogation and was told that I qualify for only 250K because I do not have any outside income. This is despite an 816 Fico, no debt and invested assets exceeding 10x the value of the property. Short answer, yes. Get your HELOC before you retire.
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Old 04-16-2017, 07:02 AM   #17
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yes, it is a good idea if you have substantial home equity.
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Old 04-16-2017, 07:18 AM   #18
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I thought about a HELOC at RE, but didn't act on it. I kind of thought it would be more hassle that what it is worth in my situation. We RE 2 years ago and have been debt free for 24 years. We have a modest house in a modestly priced area of the country so the amount of the HELOC would likely be small compared to others. We likely would have to unfreeze our credit to get a HELOC which is not difficult, but one more reason not to mess. We keep a modest cash allocation in CDs & HYS that should cover what a HELOC would and can cover living expenses for a number of years to buffer down turns.

2 years of RE really is not enough time to determine if our decision is correct, but our choice was to bypass the HELOC.
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