HELOC Dilemma

[Islandtraveler]

Hello all. I seek the wisdom and guidance of the collective community. Just prior to my ER back in August of 2015, I was under the impression that I had 21 years left on my HELOC which I secured 9 years ago. I like having the flexibility to draw upon it for unexpected expenses that otherwise might require me to liquidate an equity position. I used it as a bridge loan during my w****g years when paying estimated taxes. I just received a letter from the bank and was told that I only have 1 year left to draw from the account with 20 years to pay it off. I have a balance of $210,000 which I am using to finance a short term investment which will be paid off in April of 2017. I currently pay 2.99% interest which is prime -.50%. When I called the bank, I was told that I could re-apply for a new term which would include a higher interest rate. I want to continue the option, but I am concerned that I will get turned down now that I do not have a formalized income. I do have ample liquid assets that could easily service the debt and have an 800+ FICO score but don’t know how retirement is perceived by lending institutions. Anyone have any insight that they could share? Thanks

 

[pb4uski]

In my understanding it varies.... but they now allow lenders to count your wealth in tax-deferred accounts.

Refinancing Your Mortgage on a Fixed Income - Work and Retirement - AARP Ever...

The new rules, however, just might make all the difference — if you can find a loan officer who's willing to do the necessary legwork. Jeff Lipes, a past president of the Connecticut Mortgage Bankers Association, says the new calculations to boost retirees' eligibility go like this: Let's say a retiree has $1 million in an IRA or 401(k) and wants a 30-year fixed-rate mortgage. Lenders calculate 70 percent of that $1 million (the balance is reduced by 30 percent to account for market volatility; no rate of return is assumed). They divide that $700,000 (that's 70 percent of $1 million) by the term of the loan (such as 360 payments for a 30-year mortgage).

Using this formula gives the borrower an extra $1,944 to show for monthly income. So consider Eberle as an example. That $1,944 in assets would be added to his $2,400 monthly Social Security benefit, almost doubling his income and enhancing his ability to qualify for a mortgage. (By the way, borrowers aren't required to tap those retirement assets.)

 

[Ken11]

I obtained a new heloc aftrr retiring
I show income as i withdraw 401k funds
Between this and my 800 ish credit score i was approved

 

[pb4uski]

I have heard that some places count tax return income which would include tax-deferred withdrawals (and in my case Roth conversions).... I think that is a bit ignorant as unless they get other information they have no way of telling how much longer that income could last.

 

[MRG]

We just signed off on one. Less than we hoped for due to low income but I was surprised to get anything. All we showed was DW'S meager SS and 12k in dividends from taxable accounts. I'm guessing with more digging we could have shown more income. One thing I learned was to stay with traditional lenders, one of the folks who came out of the woodwork was scum.

 

[sheehs1]

I just went thru this as the 10 year draw period for my prime -1.0% HELOC was in it's last year and it is the "draw period" I also wanted. Using your current lender helps as they WANT to keep you.You also already have a history with them and are in "good standing".

1. Shop HELOC rates. When they first quoted my new rate it was higher than current mortgage rates. They quoted me 4 and 1/2%. I asked them to cancel the reapplication. They asked me why. I told them (1) their HELOC rate was higher than a mortgage, so why would I do that? and (2) I was able to quote the HELOC rates offered by PenFed and another credit union (which they verified) and I told them I could get better rates elsewhere. They came back to me at Prime +1/4%. (3.75% I think) (Gone are the days of those Prime minus some percentage HELOCS!)

2.I had to give them two years of tax returns. I don't have any W2 income but do have K1 income, investment income and a 1099 for Board Fees. It didn't seem to bother them that I did not have W2 income. I have a long history with this lender though.

I also think it helped that I have money with them in Certificates of Deposits and cash accounts which exceeds the amount of the HELOC.

Wish I could help you more on the income question.

 

[Senator]

I believe you can still draw from it, it's just that you have to pay interest and principal after the initial period. I do not think it is 'froze', but I may be incorrect.

If it is at/near the maximum already, you cannot draw any significant amounts, regardless.

I use my HELOC for short term money, but them pay it back right away. If you have more equity available, that might be a good option. You can attempt now, and still have the original if it doesn't work out.

 

[sheehs1]

Senator, I was told I would no longer be able to "draw" on it. I would be interested to know if others are told the same thing.

I don't use mine a lot at all and I think there is only $2,000 on it. Having the available credit "just in case" was/is a comfort thing for me. If I wanted to buy a condo…I could do it with this HELOC and some cash and initially avoid the whole mortgage thing. Same with a car if I didn't want to use my cash. Although, will be interesting to see if dealer loans are cheaper than a HELOC now. I have not bought a car for a while.

 

[REWahoo]

Senator, I was told I would no longer be able to "draw" on it. I would be interested to know if others are told the same thing.

When the draw period ends you can no longer draw funds.

 

[SteveNU]

Mine is the same way, 10 year draw then it converts to fixed rate loan with a 20 year term payoff.

Sent from my Nexus 7 using Early Retirement Forum mobile app

 

[W2R]

I like having the flexibility to draw upon it for unexpected expenses that otherwise might require me to liquidate an equity position.

Here's how I would deal with your situation (YMMV):

(1) Pay off your HELOC
(2) Keep a cash emergency fund
(3) Go enjoy your retirement - - play golf, putter around in the garden, travel, read a book, or whatever activity you like. Unless you are drastically underfunded, the money you save by not keeping a cash emergency fund is unlikely to cause any noteworthy differences whatsoever in your retirement lifestyle.

 

[Islandtraveler]

Thank You to all that responded back to me. Chase made it pretty clear that I only had a 10 year draw period with a 20 year payback period. I don’t know how I missed that when I signed up for it. Being that I still showed a conventional income on my 2015 taxes, I think that I will just apply before the 2016 return comes due. Although the credit line was not part of my retirement plan, it just offered another level of convenience for me. It just is a bit unsettling to me that lending institutions will view me differently now that I am retired. I have spent a lifetime building financial credibility. You would think that they would take that into account.

 

[Fedup]

I think mine is the same. I forgot whether it's 10 or 20 year. I'm with Penfed.

 

[MRG]

It just is a bit unsettling to me that lending institutions will view me differently now that I am retired. I have spent a lifetime building financial credibility. You would think that they would take that into account.

You're the same and your excellent credit does mean something. What changes is(for many including me) you have less income to support the debt.

FYI I would talk with another lender from what I was told their underwriters may have different thresholds. I was offered a loan from Chase didn't pursue it as BofA offered the same terms but twice the loan amount.

FYI ours is the same regarding term.