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HELOC or Reverse Mortgage
Old 04-24-2018, 03:22 PM   #1
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HELOC or Reverse Mortgage

I would like to hear from folks here that actually pulled the trigger on either product. Likewise, if anyone was in the business of either product.

Not in the "heavy breathing" stage with either product. Probably no real need either. Just mulling things in my spare time.

I know the RM is expensive, but that doesn't bother me much. We're gonna stay here 'til we can't. Also, our one DS has near zero handyman /mechanical talents; apartment life is ideal for him.

Anyway, let the fur fly!
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Old 04-24-2018, 04:55 PM   #2
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... Probably no real need either. ...
There are cheaper hobbies.
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Old 04-24-2018, 06:36 PM   #3
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I used a HELIOC to pull equity out a of a rental property. There were personal reasons for doing it. The interest was deductible against the rental income.
From what I know, reverse mortgages are very loaded with fees. I will let experts here chime in on this in greater detail.
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Old 04-24-2018, 07:27 PM   #4
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I used a HELIOC to pull equity out a of a rental property. There were personal reasons for doing it. The interest was deductible against the rental income.
From what I know, reverse mortgages are very loaded with fees. I will let experts here chime in on this in greater detail.
Interest is only deducible if used for the rental property or another rental property. Interest is not deductible if you used proceeds to buy personal vehicle for instance.
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Old 04-24-2018, 08:21 PM   #5
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We got a HELOC to help finance a major remodel a few years ago. Have paid most of it off but keeping it open in case we need it and choose not to withdraw from portfolio instead. May not ever draw on it again but itís reassuring as a back-up plan.
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Old 04-24-2018, 08:48 PM   #6
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Have a HELOC used it just once so far, to float some money that was coming in, paid $20 in interest for a month or so on a few $1000 if I recall correctly.

Nice to have but have to be renewed and with changes in tax laws deductibility of interest may no longer be one of the reasons to get one. Obviously if you sell the house you have to have the cash to pay it off. We do worry that when it comes time to renew and assuming my wife retires by then whether we will qualify with no work related income.
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Old 04-24-2018, 08:49 PM   #7
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Interest is only deducible if used for the rental property or another rental property. Interest is not deductible if you used proceeds to buy personal vehicle for instance.
You are technically correct, but all the IRS sees is a 1098 for the interest there is no explanation for the loan balance.
Now if you are audited, that is another issue. But the odds are very small.
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Old 04-24-2018, 08:52 PM   #8
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Interest is only deducible if used for the rental property or another rental property. Interest is not deductible if you used proceeds to buy personal vehicle for instance.
My bank does not know or care what i use my heloc for. I have purchased a enclosed trailer and 4 wheelers then claim the sales tax on those as major purchases as well as the heloc interest.
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Old 04-25-2018, 06:38 AM   #9
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You are technically correct, but all the IRS sees is a 1098 for the interest there is no explanation for the loan balance.
Now if you are audited, that is another issue.
Or, if you have issues with cheating on taxes.

Bogleheads will close down a thread where posters are discussing tax evasion. Does early-retirement have a similar policy?
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Old 04-28-2018, 10:11 PM   #10
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A have two older friends who have reverse mortgages. Both have a ton of equity in their homes and no savings and not a lot of current income. In general, I don't think they are good ideas because of high fees but in these cases, it was definitely the right thing to do.
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Old 04-29-2018, 07:04 AM   #11
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Not in the "heavy breathing" stage with either product. Probably no real need either. Just mulling things in my spare time.
What would be the point of these loans? What is the goal?
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Old 04-29-2018, 03:36 PM   #12
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Or, if you have issues with cheating on taxes.

Bogleheads will close down a thread where posters are discussing tax evasion. Does early-retirement have a similar policy?
Agree. Advocating tax evasion is probably not a suitable topic on this forum.
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Old 04-29-2018, 03:36 PM   #13
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My bank does not know or care what i use my heloc for. I have purchased a enclosed trailer and 4 wheelers then claim the sales tax on those as major purchases as well as the heloc interest.
The bank may not care but the IRS does.
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Old 04-29-2018, 03:51 PM   #14
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My father is 80.5 and in relatively good health (still sharp, still driving). He has a modest house, worth $175K, and a mortgage of $53K. He has some 401(k) assets, ~$90K. He's generally taking the RMDs from the 401(k), and not anything additional. I was wondering what you all would think of him taking out a reverse mortgage. He's single, and would like to do some more travel before it's too late. I don't really need any inheritance from him, so leaving money on the table is relatively unimportant. I've also thought it would be easier to just up the RMDs to something like 10%. Thoughts?
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Old 04-29-2018, 03:57 PM   #15
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What would be the point of these loans? What is the goal?
Mostly as an additional stash of cash to use during any extended bear market. As others have noted, both may be too costly. That said, I'm just seeking insights here (as oftentimes, I learn of new concepts, ideas etc.) by noodling with peers.

As OP, yeah, I'm not into tax evasion either. Don't much care what I'm paying for, but pay I do - - - every cent.
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Old 04-29-2018, 04:39 PM   #16
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I have a HELOC just in case... but have never used it. I got it in case I needed to pull cash out unexpectedly and didn't want to pull out from pre-tax accounts (impacting not just taxes but ACA PTCs).

One of my brother in laws will not be getting much SS because he's worked "under the table" for years... (Yes, we've been telling him the lower SS is a big downfall of this decision, not to mention the lack of legality.) He's looking at a reverse mortgage because his only asset is a paid off house worth about $120k. He's hoping the reverse mortgage combined with SS will be enough. He's single, no kids, and the king of living on the cheap... so it will probably work for him. Since he has no income, and not much asset - not sure he'd qualify for a HELOC.
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Old 04-29-2018, 07:18 PM   #17
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A reverse mortgage can be an option for people who cannot get a HELOC. With the new changes made 10/2/17 - the fees are higher for some people and lower for some(mortgage insurance of 2% of the value of the home regardless of what amount you need to pay off an existing mortgage - prior to the change people with no mortgage liens on the property paid 1/2 of 1% of the value of the home and people with large remaining mortgage balances paid 2.5% of the value of the home) - origination fee lender is allowed to charge still based on value of home - from 2500 to 6000 (for homes valued 400K or above) and regular closing costs (attorneys fees, title insurance to lender, recording fees etc). The percentage that can be borrowed was also lowered again - roughly 50% of the value of the home.
For people who want this to be their last home and with little concern for their heirs getting shut out of the value of home on sale at their death they can still be a tool in the retirement toolbox.
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Old 04-29-2018, 07:25 PM   #18
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We secured a HELOC last year right before my DW retired at my age 60. We will use it - or not - as a hedge against a significant bear market. My plan is to consider a reverse mortgage in 10 years if necessary. Belt and suspenders.
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Old 04-30-2018, 08:35 PM   #19
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We also got a HELOC a couple of years before ER. We used part of it to fund a remodel but have since paid most of it off. The main reason we got it was so we could draw on it if needed during a market downturn to avoid selling depressed assets.

Even though a reverse mortgage is expensive, it seems like for people who arenít concerned with leaving property to heirs, a reverse mortgage could be a good alternative to LTC insurance. DH and I are choosing to self-insure for LTC and it seems to me that a reverse mortgage could be a good fallback plan for us if need be, and a lot cheaper than paying LTC premiums for 30+ years.
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