Getting loans when retired

[TheWizard]

I don't mean to sound snooty, but here's what came to my mind when reading the title of this thread.

I'm in my 12th year of retirement, and like every other retired person here I am sitting on a substantial nest egg that allowed me to retire, along with a paid off home and car.

The thought of even applying for a loan in retirement seems wacky to me from my vantage point. If I wanted to borrow money (which I don't), I suppose that I'd borrow it from myself.

Same here.
I put excess retirement income into my taxable account where it's available for almost any larger purchase.
The exception would be if I decided to buy a second home, but I don't plan to do that...

 

[doneat54]

I don't mean to sound snooty, but here's what came to my mind when reading the title of this thread.

I'm in my 12th year of retirement, and like every other retired person here I am sitting on a substantial nest egg that allowed me to retire, along with a paid off home and car.

The thought of even applying for a loan in retirement seems wacky to me from my vantage point. If I wanted to borrow money (which I don't), I suppose that I'd borrow it from myself.

Thanks for all the responses. About what I expected, but some who say they were given loans with no regular, fixed income stream are a little surprising.


We have no predicted need for a mortgage. We just paid cash for a couple 2-3 year old cars, so good there.

We have no pensions, nor annuities, nor plans to get one. NW is significant. It's mostly about the HELOC, at today's rates, versus taking large chunks out of the portfolio and taking the tax sting. It just seems to be cheap money available if/when you need it. I think we will close the HELOC on the present bank and take the cash from the refi to the new bank and see what they have to offer. It will be a sum that should get their attention.

 

[TheWizard]

I think in some cases it makes sense to carry a mortgage in retirement. But this has been discussed on this forum a number of times already, so I won't reiterate some of the possible considerations. No need to derail this discussion.

I'm 5 years in and I still carry a mortgage myself, so I don't think it's wacky. Obviously.

I did exactly that, paying off my existing mortgage for the first 5+ years of retirement.
Having completed that, I now have that extra monthly income going into my slush fund henceforth...

 

[steelyman]

I’m not sure if this belongs in this thread but here it is.

There is something called the “Applicable Federal Rate”, published monthly, which is appropriate for loans between family and friends.

https://apps.irs.gov/app/picklist/list/federalRates.html

I used it for a 5-year personal loan to a friend about seven years ago. The rate is typically much less than other lenders would charge.

 

[daylatedollarshort]

We've used the HELOC for extra expenses after we've reached the ACA income cliff limits for the year. The law has changed now, but in the past if you went $1 over over the cliff, you would use your subsidies. So if I needed an extra $1 over the cliff, I could borrow from the HELOC and pay ~3% interest, or 3 cents, or pay an extra $25K in taxes by losing the ACA tax credits. When one of the kids was in college, tack on another $10K to that in lost state grant money by going over the financial aid cliff, which had a similar amount to the ACA.

I don't think it was wacky to pick the 3 cent HELOC option vs. losing $35K in college grants and tax subsidies.

 

[marko]

For mortgages You need to show a history of income (last 2 years) and need to have automated withdrawals from IRA to make it look like a pension. They don’t trust you to make withdrawals on your own.
Even if you have 800 credit score.
Car loans just need a good credit score.

This was exactly our situation! Despite an 850 credit score, zero debt and several million dollars earning interest, we were unable to get a mortgage because we only withdrew from the portfolio on an 'as needed basis' (i.e. a few times a year when the checking account got low).

What they need to see were 'regular, scheduled and formal' withdrawals. As such, we just paid cash. Talking to the guy at Fido at the time, he said he runs into this all the time.

 

[Scuba]

This was exactly our situation! Despite an 850 credit score, zero debt and several million dollars earning interest, we were unable to get a mortgage because we only withdrew from the portfolio on an 'as needed basis' (i.e. a few times a year when the checking account got low).

What they need to see were 'regular, scheduled and formal' withdrawals. As such, we just paid cash. Talking to the guy at Fido at the time, he said he runs into this all the time.

Yep. I had heard this too and felt it would be beneficial for us to have a HELOC in case we needed cash and didn’t want to liquidate investments in retirement. We retired in our mid 50’s and have been living solely from investment income including capital gains, interest and dividends, so about 2 years pre-ER, we got a HELOC with a below prime borrowing rate. The market has been so great we haven’t drawn on it since ER, but it’s nice to have it just in case.

 

[Koolau]

My case as well. Taking out a loan meant I could avoid paying a lot of tax and pushing me into the next bracket, either cap gains tax on my portfolio, or full tax on a tIRA withdrawal, or dipping into Roths and eating up that tax advantage.

I don't know that I'd categorize W2R's response as 'snooty', but viewing a mortgage in retirement as 'wacky' just seems to be ignoring some of the facts. Why do that? I sure don't view it as wacky to not have a mortgage in retirement, though I do think it is a missed opportunity, but still just a personal choice.

-ERD50

Yep! The last thing I'd accuse W2R of being is "snooty"!! I value her opinion and her friendship here on the forum. It's just that each of our cases are so different.

I've often "warned" the young whippersnappers (you know, folks in the 40's) to avoid the mistake I made of putting every last dollar possible into a 401(k) or tIRA to save current taxes. I paid (and am paying) a price for that now and in recent past. If you NEED money, it is SO nice to have "lose cash" or at least already-taxed money handy so you don't have to pay taxes or blow through one of the AGI limits (I ended up doing both one year)

We learn as we go and us old fuddy-duddies (you know, folks over 60 - well 70) love to wax poetic (or some such) and pass along our hard-earned (often painful) lessons to the young'uns. YMMV

 

[daylatedollarshort]

This was exactly our situation! Despite an 850 credit score, zero debt and several million dollars earning interest, we were unable to get a mortgage because we only withdrew from the portfolio on an 'as needed basis' (i.e. a few times a year when the checking account got low).

What they need to see were 'regular, scheduled and formal' withdrawals. As such, we just paid cash. Talking to the guy at Fido at the time, he said he runs into this all the time.

Fido has an online form to set up the monthly distributions under account setting that only takes a few days advance time to set up and you can have the money deposited in a Fido checking account. The lender we're working with said they just need a copy of the set up form and to see one month's deposits. We did that, but as I said haven't closed yet so I can't say for sure it will pass muster with the underwriter.

 

[Winemaker]

We refinanced our home two years ago, it was the fourth time in 30 years. The original loan was 30 years and we refinanced later to a 15 year, 3 times. Each time we refinanced , it was a for a lower rate and it was a cashout loan, which was used to pay off a rental property that had a much higher rate.

Any how, the biggest issue we had with a refinance was the idiots who asked for documentation, and didn't understand how to read or understand Schedule E's, or bank statements. Mortgage lenders love to see periodic deposits on the bank statements that show exact income that would be used to make the mortgage payments. But when they see a cash rental payments received on the 1st of one month and the fourth the next month, they don't comprehend that it was paid, but not on the same periodic time. Multiply that by 7 units and they go insane. They loved our pension payments, but didn't quite understand my monthly withdrawals from my performance MM fund to my checking account for monthly expenses. The loan was applied for, approved and closed within 3 weeks.

The add-on HELOC with the same bank was a total nightmare over the same issues, but was finally approved and closed on in 90 days. The same bank did both loans, the HELOC loan did not accept the walkthrough appraisal from the new mortgage that was $50,000 higher than the driveby appraisal, which messed with the debt ratio. The bank employee who worked with me as literally in tears over how bad their HELOC loan dept. ran their business.

 

[Scuba]

Fido has an online form to set up the monthly distributions under account setting that only takes a few days advance time to set up and you can have the money deposited in a Fido checking account. The lender we're working with said they just need a copy of the set up form and to see one month's deposits. We did that, but as I said haven't closed yet so I can't say for sure it will pass muster with the underwriter.

I think this depends on the source of the withdrawals. This may work if withdrawals come from IRA accounts. However we are living off our taxable brokerage account and I was told by lenders that regular withdrawals from that don’t count.

 

[marko]

Fido has an online form to set up the monthly distributions under account setting that only takes a few days advance time to set up and you can have the money deposited in a Fido checking account. The lender we're working with said they just need a copy of the set up form and to see one month's deposits. We did that, but as I said haven't closed yet so I can't say for sure it will pass muster with the underwriter.

I think this depends on the source of the withdrawals. This may work if withdrawals come from IRA accounts. However we are living off our taxable brokerage account and I was told by lenders that regular withdrawals from that don’t count.

We didn't get that far. I have a very limited amount of patience when it comes to jumping through hoops. We just wrote a check and were done with it.

 

[Fermion]

If we were to start up a 72T (at age 50), would that show income for a loan? Would banks buy that?

I think it does make a lot of sense to get a loan at 3% during this time period....a great inflation hedge. I would probably refi the house we are building. Right now we paid cash for the lot and have paid cash for all of the building materials. I could use the 72T as income for ACA too and just live off the refi loan.

 

[ncbill]

Rather than jump through the hoops in previous posts I'm considering moving over to Interactive Brokers to be able to borrow against my assets at IB's dirt-cheap margin rates:

https://www.interactivebrokers.com/en/accounts/fees/pricing-margin-rates.php

Anybody else use them for the above?

 

[cat4ever]

Rather than jump through the hoops in previous posts I'm considering moving over to Interactive Brokers to be able to borrow against my assets at IB's dirt-cheap margin rates:

https://www.interactivebrokers.com/en/accounts/fees/pricing-margin-rates.php

Anybody else use them for the above?

It seems like they give you a loan on your existing investments to buy more stocks, not to buy a house or use for anything else. What am I missing here?

 

[daylatedollarshort]

I think this depends on the source of the withdrawals. This may work if withdrawals come from IRA accounts. However we are living off our taxable brokerage account and I was told by lenders that regular withdrawals from that don’t count.

You might try Penfed Credit Union. They were the ones who told me they went by income on taxes. I think this is because they fund their own loans and don't plan to sell to Fannie May or Freddie Mac. They said if we used asset depletion we had to show enough assets to cover 30 years of payments, which I took to mean they planned to hang on to the loans for 30 years. The other lenders I talked to said we only needed to show 3 years.

Fannie May and Freddie Mac are the ones with the retirement account and 3 years of assets rules. According to the WSJ, they support about half the mortgage loans in the country, so you'd have to find a lender who doesn't follow the Fannie May and Freddie Mac rules for qualifying.

Side note: Showing three years of assets for a 30 year loan to a retiree with no employment income? On what planet does that make any sense?

 

[daylatedollarshort]

If we were to start up a 72T (at age 50), would that show income for a loan? Would banks buy that?

I think it does make a lot of sense to get a loan at 3% during this time period....a great inflation hedge. I would probably refi the house we are building. Right now we paid cash for the lot and have paid cash for all of the building materials. I could use the 72T as income for ACA too and just live off the refi loan.

You'd have to check with a lender, but it seems like it would under these Fannie May rules - https://selling-guide.fanniemae.com...-IRA-account-be-used-as-qualifying-income.htm

"We offer two options for a borrower to use this asset to qualify as income. The lender 1) must document regular receipt of the income in the form of a distribution from a 401(k), IRA, or Keogh retirement account, as well as, confirm that it will continue for at least three years; or 2) may create an income stream using eligible "employment-related assets" when a distribution is not already set up or the distribution amount is not enough to qualify."

 

[Time2]

Finally a bank said show us your taxes for 3 years. Turns out we'd converted a bunch of 401(k) money to ROTHs. THAT was our salvation. Even though we actually had LESS total assets (after all, we had to pay taxes on the conversions) the conversion gave us "income" on our 1040 and the bank was happy with that. That was another reason we were low on non-qualified cash or assets. We'd spent a fair amount on taxes over the 3 years for the conversions. Total balderdash thinking on the part of the bank in my opinion but it got us our loan. Who knew? YMMV

That Roth Conversion idea may come in handy for us if we ever need to borrow. I have a 780 Credit Score, but only have one credit card, but plenty of assets. I was declined when I applied for an Amazon Credit Card. They said I didn't have enough credit cards! I could have my wife cosign for me, she has several credit cards.

 

[GTFan]

If you have a healthy retirement account or investment account your brokerage firm may offer you a low cost loan using your investments as collateral. I did this to buy and renovate our new home before selling our existing one. 500+K. No points, no fees just straight interest for 1-3 years at about 2%. Was going to otherwise sell investments returning 8% or thereabouts.

Which broker gives you a 2% portfolio loan? I've seen mention of Interactive Brokers but didn't think they were that cheap, Schwab is a little less than 3%.

EDIT: to answer my own question, a $200k margin loan from IB is currently a little over 1.3% (for a Pro account, otherwise about 2.6%), at Schwab a pledged asset loan a little less than 2.4% (if you pledge $1mil+ of nonretirement assets). Schwab will loan up to 70% of portfolio value with a min draw of $70k, margin loans are up to 50% of value. No way would I do anywhere near that percentage to avoid risk of margin calls.

I think IB is mainly for experienced investors that trade actively, not the typical folks here. Would still like to know which broker you used.

 

[GTFan]

It seems like they give you a loan on your existing investments to buy more stocks, not to buy a house or use for anything else. What am I missing here?

Margin loans can be used for any purpose, not just equities.

 

[Winemaker]

Margin loans can be used for any purpose, not just equities.

I agree, I used one years ago to buy a car. Then the funniest thing was the remaining securities rose in value so fast the within a year the car was paid off when I sold some of the securities.

 

[Koolau]

If we were to start up a 72T (at age 50), would that show income for a loan? Would banks buy that?

I think it does make a lot of sense to get a loan at 3% during this time period....a great inflation hedge. I would probably refi the house we are building. Right now we paid cash for the lot and have paid cash for all of the building materials. I could use the 72T as income for ACA too and just live off the refi loan.

I have no idea if they WOULD see that as income, but in essence, that's what we did when we converted tIRAs (starting with 401(k)s actually) to ROTHs. They were "income" on the 1040 'cause we hadda pay taxes on them and that was ALL the banks cared about. Made no difference to them that we were (in effect) spending some of our numerical capital. You'd think that would be a "bad" thing. But the banks have their own little formulae. If you "satisfy" their formula, you're golden. "Income is income" if it's on your 1040 the nice young lady said to us - "You qualify!" Surprised the shazbot out of me but YMMV.

 

[Time2]

Which broker gives you a 2% portfolio loan? I've seen mention of Interactive Brokers but didn't think they were that cheap, Schwab is a little less than 3%.

EDIT: to answer my own question, a $200k margin loan from IB is currently a little over 1.3% (for a Pro account, otherwise about 2.6%), at Schwab a pledged asset loan a little less than 2.4% (if you pledge $1mil+ of nonretirement assets). Schwab will loan up to 70% of portfolio value with a min draw of $70k, margin loans are up to 50% of value. No way would I do anywhere near that percentage to avoid risk of margin calls.

I think IB is mainly for experienced investors that trade actively, not the typical folks here. Would still like to know which broker you used.

I just put a bunch of Mutual funds and Exchange traded funds into IB. My daughter is buying a foreclosed house with an FHA loan, however the house is being made to jump through hoops and the first loan was close to closing and an inspector said it had a structural issue. That stopped the first loan process just weeks before closing. Then they had to start all over. So now they will most likely be in a position were the get a charge for every day past a certain date. Anyway, if it all falls through I should be able to borrow at good rate against the funds I deposited in IB and give them a loan until they get a mortgage.

 

[Ablatus]

Auto withdrawal

I refinanced in January, saving $550 a month. I had a solar loan I combined with my primary loan and dripped from 4.75% to 2.75%. I am on a disabled retirement and the lender wanted me to have what I took out of my IRAs last year show as a monthly income this year. That was easier than documenting I had income from a renter in the spare bedroom. I had to set up a monthly distribution from Vanguard. As soon as I got the loan, I cancelled the auto distribution.easy peasy

 

[1RichCrook]

Retired in January 2016. Got a new mortgage in March of that year to move into house in another state. In August of 2018 got another mortgage to move back to original state. March of this year got construction loan that will be rolled into a new mortgage when my house in another new state gets completed next year.
All of my retirement assets are in a 401 k from my last employer. Have never taken regular withdrawals since we use the equity from sold homes to live on. Haven’t had a problem getting any loans for any of these mortgages. The construction loan was a little more paperwork intensive ( very little). Have used a heloc in the past but they were discontinued at this lender a few years back so can’t speak to those.
Wife (retired a year before me) and I have good credit and we are both 61 years young.