Getting a HELOC before Retiring
- Thread starter G-Man
- Start date
skyking1
Thinks s/he gets paid by the post
I was considering a HELOC to build the new home, but it is ~100 miles away and ultimately I need to be closer to finish the build. I'll cash what I can do and sell our home to replenish the cash and finish the build. We have not rented in decades but it looks like the answer.
Yes. Also 10 year term is typical. Won’t accept brokerage account as source of funds. Had a choice between Roth or IRA. STUPID.
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jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
That’s a loooong time.
bltkmt
Recycles dryer sheets
This thread made me pull out my HELOC agreement to review. Ours is with Wells Fargo and it had a 10 year draw period that is expiring in two years. I reached out to them and they indicate that they are not writing new HELOCs currently, so I may need to shop around when this one expires.
I did this before I retired for peace of mind and since LTV has increased so much, even though I have 2 years of cash. Just found out we need a new furnace! Don't want to use a chunk of cash and hasten the need to use after tax funds that are invested.
As it turns out we can do a 0% loan thru the heating company, which is ideal but it sure was nice to know we could have leveraged the HELOC if we wanted to.
IMO it's just another tool in your arsenal and esp if you are the sole W2 earner much easier to qualify with W2 income than not. Assuming like the majority here you'd not put yourself in a position to be under water if there is a crash in home values etc etc.
Plenty of local credit unions offer no closing costs.
As it turns out we can do a 0% loan thru the heating company, which is ideal but it sure was nice to know we could have leveraged the HELOC if we wanted to.
IMO it's just another tool in your arsenal and esp if you are the sole W2 earner much easier to qualify with W2 income than not. Assuming like the majority here you'd not put yourself in a position to be under water if there is a crash in home values etc etc.
Plenty of local credit unions offer no closing costs.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Another thing to consider before retiring is to up the credit limit on all your credit cards.
jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I did this in anticipation of a major home improvement. Worked out well until last fall. Adjustable rate is jumping up so redirecting resources to pay it way down but plan to carry a small balance.
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.
The max at my credit union is 10yr draw, 20yr repayment. During the 10 yr draw period, interest payments only. 85% LTV, max borrowing amt. $250K. Closing cost around $900.
The 10yr draw period will take me to my SS FRA (67).
Any other important questions I need to ask the credit union?
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Newventurer
Recycles dryer sheets
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
However, at least with the HELOC from my credit union, the borrowed amount payments are re-adjusted based on current rate at the credit union. For the 20yr, the rates are adjusted monthly. That could be good or bad right?
EastWest Gal
Thinks s/he gets paid by the post
We took out a HELOC before my first planned retirement, in 2014. We have a 10 year draw and 30 year repayment. $100K. Used twice-expensive deck/hot tub replacement in 2014, and new roof and solar panels in 2018. We only need to cover interest, but we pay more. If need be, we have $60K available at this moment, but we don’t plan to tap it again.
jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
Index = Prime rate
Margin = need to find out. However, currently the 15 yr rate is 7.675% and the 20 yr rate is 8.175%.
Caps = Low, 3.75% is the floor rate for HELOC 20 yr. Need to find out the high cap
Frequency - Monthly
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 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.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
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.
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Montecfo
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
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.
Thanks for the response. I was just hesitant due to the fact it adds a second lien holder on the property.
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
The power of a margin account. I have not added this feature to my brokerage account yet. Maybe in the future.
COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yep, those were the days to take on debt. I got my mortgage the year before the article date, in 2020, at under 3%. I plan to carry that debt for a long time. My fixed income in total throws off 5.2% in comparison with a big portion being in tax free munis.
Even at 5.58% I don’t think I would tap margin, but I am glad I have it on my account.
