Getting a HELOC before Retiring

[G-Man]

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/

 

[iloveyoga]

We did not have any trouble getting one in retirement.

 

[G-Man]

We did not have any trouble getting one in retirement.

Did you get one from your local credit union?

 

[iloveyoga]

Our bank.

 

[G-Man]

I know home values has increased in 2022 so the home appraisal may be more favorable for a higher home equity amount.

So, is this a good time to get a HELOC?

 

[38Chevy454]

I think it's easier to get one with regular W-2 type income. But you can get one if you show regular deposit(s) to your checkbook account or whatever you use for monthly expenditures. What they want to see is repetitive money coming in, not your total savings balance that could be 5-10x the amount of the HELOC. Seems kind of weird, but that's the way the underwriting seems to focus - on regular deposits into your checking account.

 

[audreyh1]

Just because you get one doesn’t mean you will be able to use it a few years later. During the financial crises of 2008+ quite a few were no longer accessible.

 

[ExFlyBoy5]

I know home values has increased in 2022 so the home appraisal may be more favorable for a higher home equity amount.

So, is this a good time to get a HELOC?

A good time? You need to elaborate a little more. Since I assume you are still employed, for application/underwriting purposes...yes, it would probably be easier. Values are still decent, so that too makes it a "good time."

However, do keep in mind that these accounts may be closed at any time by the lender and some users here have made note of that during the 2008-2012 time frame. Also, a true HELOC almost always has a variable rate, so it might be OK today, but could not be such a great rate in a few years.

 

[G-Man]

A good time? You need to elaborate a little more. Since I assume you are still employed, for application/underwriting purposes...yes, it would probably be easier. Values are still decent, so that too makes it a "good time."

However, do keep in mind that these accounts may be closed at any time by the lender and some users here have made note of that during the 2008-2012 time frame. Also, a true HELOC almost always has a variable rate, so it might be OK today, but could not be such a great rate in a few years.

Yes. I'm still working. Plan to retire in 1 1/2 years. I would think a high appraisal would increase your equity amount.

 

[FLSUnFIRE]

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'm glad I got one for liquidity/peace of mind. I suspect if I use it it will be more to manage realized income in a given tax year over living off it due to a down market. Mine is a 40 year with a 20 year draw period so will last until I can touch my other investments more easily and at a time I'm statistically likely have too much money and liquidity will not be a problem.


I doubt I would easily qualify now as I can show very little income as I've been living off cash and will be managing income for MAGI as long as I can. I suspect those getting pensions/gov't payments or even possibly regular withdrawals would fit the model the banks use.

 

[G-Man]

I'm glad I got one for liquidity/peace of mind. I suspect if I use it it will be more to manage realized income in a given tax year over living off it due to a down market. Mine is a 40 year with a 20 year draw period so will last until I can touch my other investments more easily and at a time I'm statistically likely have too much money and liquidity will not be a problem.


I doubt I would easily qualify now as I can show very little income as I've been living off cash and will be managing income for MAGI as long as I can. I suspect those getting pensions/gov't payments or even possibly regular withdrawals would fit the model the banks use.

40 year with a 20 year draw? Most of the HELOC I'm seeing is 20 year with a 10 year draw.

 

[ExFlyBoy5]

I would think a high appraisal would increase your equity amount.

That's a pretty good assumption. I have seen some products out there with a "fixed rate" but they require a 100% draw at the time of funding. I don't know that I would be too inclined, even at some 4.5% rates I am seeing.

 

[G-Man]

That's a pretty good assumption. I have seen some products out there with a "fixed rate" but they require a 100% draw at the time of funding. I don't know that I would be too inclined, even at some 4.5% rates I am seeing.

I have no plans to take a draw until absolutely necessary. It will be used as a security blanket just in case.

 

[ExFlyBoy5]

I have no plans to take a draw until absolutely necessary. It will be used as a security blanket just in case.

We did the same when I first retired but didn't have a first mortgage. We had it through PenFed and it was pretty easy...took about 2 weeks to get it done. We never drew on it and it was closed when we sold the house. It was a nice "security blanket" and after easing into retirement realized that we probably wouldn't need one in the future.

 

[MarieIG]

I have never had a HELOC. I would think that there would be pros and cons.

(Possible) quick money if you need it - but it must be paid back and it is secured by your house. Maybe beef up your cash/ money market (in easy access taxable accounts) in addition to lining up a HELOC?

 

[TheWizard]

I had a HELOC going into retirement back in 2013.
I used it to refinance my entire remaining mortgage for the last few years of payments at a lower interest rate.

I paid off that HELOC back in 2018(?) and have no plans to borrow money again, aside from CC's paid in full each month.

My security blanket now is my growing taxable account, getting close to $200k now, funded by excess retirement income most months...

 

[G-Man]

Based on the feedback so far, it looks like there is no harm or risk in getting a HELOC before retirement. Just make sure you don't abuse it.

With that being said, what are some of the cons?

 

[G-Man]

I had a HELOC going into retirement back in 2013.
I used it to refinance my entire remaining mortgage for the last few years of payments at a lower interest rate.

I paid off that HELOC back in 2018(?) and have no plans to borrow money again, aside from CC's paid in full each month.

My security blanket now is my growing taxable account, getting close to $200k now, funded by excess retirement income most months...

I agree. My wife and I are building up our cash reserves before retirement (less than 1 1/2 years).

 

[COcheesehead]

Just because you get one doesn’t mean you will be able to use it a few years later. During the financial crises of 2008+ quite a few were no longer accessible.

^^this^^

I had well off neighbors get their HELOC pulled during the 2008 financial crisis.

 

[ExFlyBoy5]

Based on the feedback so far, it looks like there is no harm or risk in getting a HELOC before retirement. Just make sure you don't abuse it.

With that being said, what are some of the cons?

-If you run into some extreme financial issues, you could lose your home.

-The loan may be closed in times of financial uncertainty (like right now).

-Your HO insurance might be higher with another mortgage on it (not sure of the odds of this).

-The interest rate could get to be quite high...if I recall, the maximum that ours could have been pushed up to was in the neighborhood of 12%. On a 100K+ loan, that could be a lot of money for someone of limited resources.

That's just a few off the top of my head.

 

[Out of Steam]

Maybe beef up your cash/ money market (in easy access taxable accounts) in addition to lining up a HELOC?

We've been running with a very low savings balance outside of retirement accounts. For the past two years, we've been doing some Roth conversions.

Beefing up savings balances outside of retirement accounts is a goal for next two years. My wife will take Social Security early next year, and we plan to divert the retirement account draws it will replace to taxable savings rather than reducing or stopping them. Some of that money will need to go to minor home repair items, paving the driveway and improving interior lighting.

 

[Montecfo]

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/

We got a HELOC post retirement from Truist.

First mortgage is at Third Federal. Great rates but on HELOC their limit is 150k, FYI.

Getting in place before retirement is easier.

 

[Montecfo]

Just because you get one doesn’t mean you will be able to use it a few years later. During the financial crises of 2008+ quite a few were no longer accessible.

Sure, it can happen. Especially if line is not well covered by home equity. But compared to the alternative, borrowing and paying for unneeded funds, it is a good hedge and usually free to get in place. Hard to beat.

Safest strategy in my opinion is to get HELOC from a brick and mortar institution in your local market, which is not holding your mortgage.

And that is what I did.

 

[G-Man]

Sure, it can happen. Especially if line is not well covered by home equity. But compared to the alternative, borrowing and paying for unneeded funds, it is a good hedge and usually free to get in place. Hard to beat.

Safest strategy in my opinion is to get HELOC from a brick and mortar institution in your local market, which is not holding your mortgage.

And that is what I did.

My local credit union offers HELOC. However, there rates are higher than Third Federal.

 

[audreyh1]

I have no plans to take a draw until absolutely necessary. It will be used as a security blanket just in case.

Just be aware that this type of “security blanket” can be ripped out from under you at the most inopportune time.