HELOC Question, Seeking Advice

[CKw4itlb]

Hello,

In 2015 or 2016, before my January/2017 official retirement, my Merrill Lynch representative (I'm now at Vanguard) had me take out a $50,000 HELOC from Bank Of America with a 10-year duration. I've never used it.

Should I have it cancelled, and if I do, what are the implications, if any? I do know it counts as a line of credit/lien. If I cancelled, would it hurt my FICO score, now in the 830 range?

There are some potential, perhaps even certain household expenses I was thinking of doing, and finally tapping into the HELOC. Would I be better served to handle those expenses with my existing credit cards, thereby getting some bonus money, and then deplete my Vanguard (and some personal savings) instead? One of the expenses is a new bed in the $2K to $3K range. Should I utilize the store's interest-free 6/12/18 month promotions?

Thank you for your suggestions.

 

[pb4uski]

You really have two separate questions there... keep or cancel the HELOC and how to pay for the expenses which include the new bed.

I suspect that the HELOC isn't costing you anything and if so, I would keep it because it provides additional financial flexibility.

Before you were retired, how would you have paid for the expenses? From savings? Put them on a credit card? I would probably pay for them on my 2% cash back credit card... or perhaps better yet, use the stores interest-free 6/12/18 month promotion and put the payment of that on my 2% cash back credit card.

 

[HawkeyeNFO]

If you don't have the cash for the expenses right now, I'd put them on the credit cards so that you get the points/miles/cash back and extended warranty coverage courtesy of Visa. Then pay the credit card off as soon as possible. Maybe with funds from the HELOC. You would need to figure out if the points/miles are worth more than any interest from the HELOC. If not, then consider their no-interest option instead of the credit card.

 

[SnowballCamper]

We recently opened a HELOC and haven't used it yet. We've had good luck finding 0% store credit for big purchases over the past few years (furniture and hot tub), which is an even better deal with high inflation. At this point the HELOC is just flexibility for us.

 

[l8_apex]

If you like having a line of credit, (even if it's only used infrequently), you should ask the bank about closing your current one and getting a new one. You've only got what, 3 years left on the current one?

 

[COcheesehead]

Getting a HELOC after retirement may have its challenges. If it’s a value to you as a just in case fund, then keep it.
Yes, cancelling it could lower your score because it reduces the size of your credit pool so your percent of credit use will go up if you use credit cards for instance.

You could also see if you can up your credit card limits and cancel the HELOC. Those two might balance each other out.

For expenses I use a credit card for the 2% cash back and pay it off monthly.

 

[Montecfo]

HELOC is valuable in retirement. I would keep that for sure.

 

[OldShooter]

HELOC is valuable in retirement. I would keep that for sure.

I had a $250K HELOC with USBank that went unused for maybe 10 years or more. I had an upcoming need for temporary cash/part of a new home build, and it was useful to have had the HELOC. I could have just used it, but instead I contacted the bank to ask for a revision to a lower interest rate. That seemed to be easier because I was already "in the family" though I did no other banking with them. So I would keep it unless that entails fees. Mine did not.

 

[FLSUnFIRE]

I wouldn't close it unless there were fees and I was sure I wouldn't use it. I took out a 40 year HELOC (20 year draw with 20 years after for pay down) prior to FIRE. I probably won't use it but it is there if I need liquidity. I could see using it to take advantage of investment opportunities but I wanted it primarily to shift realized income from one tax year to another or to skip a year of withdrawals in an extremely down market.

 

[ncbill]

Keep it as long as it has no fees.

Just be aware if another "Great Recession" comes along the bank will probably cancel it for you.

 

[OldShooter]

... Just be aware if another "Great Recession" comes along the bank will probably cancel it for you.

Probably? I don't know what the probability might be. USBank didn't cancel ours even though we were doing no other business with them.

 

[Montecfo]

Banks MAY cancel HELOC's when property values fall such that the collateral is insufficient-which is quite rational.

They do not cancel solely due to a bad economy.

 

[ncbill]

Banks MAY cancel HELOC's when property values fall such that the collateral is insufficient-which is quite rational.

They do not cancel solely due to a bad economy.

Oh yes, they did...back in the Great Recession.

Mostly those not being used, but some using theirs had their lines frozen (no additional draws)

Regardless of the equity in the home.

 

[Montecfo]

Oh yes, they did...back in the Great Recession.

Mostly those not being used, but some using theirs had their lines frozen (no additional draws)

Regardless of the equity in the home.

Property values fell very sharply, so not sure how you can say it had nothing to do with that. I will say some banks may have needed to cancel unused lines because of regulatory issues- too much exposure to real estate, but that is hardly unrelated to values.

Mine was unused and not cancelled at that time. But I had a lot of equity. But it can happen

But even so, the HELOC is very valuable to have.

 

[euro]

But even so, the HELOC is very valuable to have.

Agree - I use it as an emergency cash cushion. Allows me to be more aggressive with equities.