Should one get a HELOC before retiring just in case they need quick cash during a market downturn?
Would like to hear your opinions.
FYI. It looks like Third Federal has some good HELOC rates.
https://www.thirdfederal.com/
I think I will finally pull the trigger in the next week or so on a HELOC from my local credit union. Just as a standby when I retire next year.
I'm happy mine is in place but figure the odds of using it are almost zero. Only scenario I see myself possibly using it is to gain liquidity for down payment/cash to buy a new home with no documented income if I decide to move at some point in the future. I was lucky to get one with a 20 year draw period so it will be there until SS eligibility and the start of my tiny pension.
Watch out for closing fees. I was a bit surprised by mine but happy to have it at my CU -nice to be able to xfer money immediately to checking if an emergency ever occurred. Also, try for the biggest loan you can get. I was conservative and only asked for about 30% LTV but inflation will eat at the purchasing power of the limit over the draw period -didn't cross my mind till too late.
I took out a HELOC as it was suggested as a way to manage MAGI for ACA, however the interest rate is currently 7.5%, which was unthinkable last year. Just remember the rate is variable and once you use it you may need a plan B if rates get to where they are now
Any other important questions I need to ask the credit union?
Ask them about the index, margin, caps, and how frequently it can adjust. For example my lender uses the Prime Rate as an index. The margin is -1% with no caps on how high the rate can go. It can adjust monthly which is good (when rates fall) and bad (when rates rise) as you noted.
I got a HELOC after I retired, I went into the bank and said. I don't have a job or income, I'd like to get a HELOC.
I had to bring in my Vanguard account records and my IBKR account records and they OKed the HELOC without any income stream. I bought a fixer upper house for my daughter and son in law, they fixed it up, got a mortgage and paid me in about 10 months. I borrowed
$250k on margin against the stock I had at IBKR and later, on MMMs advice I got $100k HELOC loan to pay the margin down, just in case the market had a drop, that way my stock wouldn't get sold.
I got a standby HELOC after retiring. It was pretty easy, surprisingly, based on assets and investment cash flow. I have used it modestly a couple of times usually to facilitate year-end money movements. I don't hesitate as I want the bank to make some money.
Mine is covered by home equity.
I think anyone with meaningful home equity would be wise to get one. Cost to put in place was zero and it is at my B&M bank where I have a 30+ year banking relationship.
My mortgage is elsewhere.
What was the margin interest? Fidelity’s are 8%-12% now. I have margin on my account, but look at it as a double secret backup if all hell breaks lose, but would only tap it for 30 days at most.
This was in July of 2021, and the margin rate was very low, it was 1.9%.
Today's rate is 5.58% for $100k to $1000k.
https://www.interactivebrokers.com/en/trading/margin-rates.php
The rate when I first read the MMM blog was 1.09% for an IBKR Margin loan.
I'm a little surprised at the rate today, I knew they would be higher but They went higher than I would have expected vs their low rates before.
Here is the MMM blog about IBKR Margin Loans.
https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/#comments
This was in July of 2021, and the margin rate was very low, it was 1.9%.
Today's rate is 5.58% for $100k to $1000k.
https://www.interactivebrokers.com/en/trading/margin-rates.php
The rate when I first read the MMM blog was 1.09% for an IBKR Margin loan.
I'm a little surprised at the rate today, I knew they would be higher but They went higher than I would have expected vs their low rates before.
Here is the MMM blog about IBKR Margin Loans.
https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/#comments