Getting a HELOC before Retiring

[G-Man]

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.

Same here. Well under 3%.

 

[Smilinggirl]

Goodness, yet another idea to consider. My home is paid off and worth about 450k. I've actually wondered over the years about taking out a loan against it. I kind of kick myself for not doing it 3-4 years ago when I considered finishing off the basement, but what's done (or not) is done. I suppose having a safety net of sorts is a good idea.

 

[Montecfo]

Thanks for the response. I was just hesitant due to the fact it adds a second lien holder on the property.

There is no lien if you do not borrow. So that can be considered should you decide to. It is good to have options.

 

[G-Man]

There is no lien if you do not borrow. So that can be considered should you decide to. It is good to have options.

So, if I don't borrow, it's a second mortgage with no lien. Is that correct?

 

[Montecfo]

So, if I don't borrow, it's a second mortgage with no lien. Is that correct?

Well a lien in the amount of zero perhaps? Good question for your lender.

Neither worries me personally.

But let's be clear: An HELOC is not the same as a second mortgage. A second mortgage is where you borrow a set amount and begin to pay it back immediately usually via monthly payments, with the lender having a second lien on the property.

An HELOC can be drawn (and paid down) at various times and amounts during the draw period, and at some point becomes a term note usually with monthly payments . The lender has a 2nd lien on the property.

 

[G-Man]

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

Ok. Got more information from my credit union on the HELOC.

Index = Prime rate
Margin = <=80%CLTV: 0.500%, 80.01% to 90.00%CLTV: 1.175%
Caps = Low, 3.75% is the floor rate for HELOC 20 yr, high cap is 18%
Frequency - Monthly

 

[Carpediem]

Has anyone ever gotten a HELOC on an investment property (e.g., short-term beach rental) and if so, how difficult was it to obtain? We have a $100k HELOC from PenFed on our main home that has a balance of $17k.We haven't started receiving SS yet and are living on IRA withdrawals.

 

[COcheesehead]

I think you can get a HELOC on rentals, but you might have to shop around and pay higher interest because they are viewed as inherently more risky.

Personally I think the time to add debt has past. The golden age of debt was when it was almost free.

 

[RenoJay]

Yes! As a retired person, I have 800 FICO, lots of liquid assets, and high six figures of passive income annually. And my mortgage guy told me I can’t qualify for a mortgage because my income is not the type of income the banks recognize. So, yeah, I’d get a HELOC before calling it quits.

 

[jazz4cash]

Yes! As a retired person, I have 800 FICO, lots of liquid assets, and high six figures of passive income annually. And my mortgage guy told me I can’t qualify for a mortgage because my income is not the type of income the banks recognize. So, yeah, I’d get a HELOC before calling it quits.

If I needed a mortgage under that scenario, I would ask for an “asset depletion loan”. Many lenders seem to avoid these but I would think more of them would be open to consider this type of product due to the reduced demand for mortgages. If my mortgage guy couldn’t help with this I’d find a new one. This pertains to 1st position loan.

 

[Montecfo]

Yes! As a retired person, I have 800 FICO, lots of liquid assets, and high six figures of passive income annually. And my mortgage guy told me I can’t qualify for a mortgage because my income is not the type of income the banks recognize. So, yeah, I’d get a HELOC before calling it quits.

Not sure who that guy is but that is not quite right.

I got one as a retiree and did not really encounter any problems. They did ask for assets etc but it was not based on wages or anything.

Buy as you say, wise to get this before quitting since you never know.

 

[TheWizard]

Another thing to consider before retiring is to up the credit limit on all your credit cards.

I raised the limits on my CC's after retiring due to demonstrated increased use due to considerably more travel...

 

[G-Man]

Does anyone know how the HELOC shows up on your credit report? For example, if you have a $200K line of credit but have no outstanding balance, will it show a $200K credit line with no outstanding balance?

 

[jazz4cash]

Does anyone know how the HELOC shows up on your credit report? For example, if you have a $200K line of credit but have no outstanding balance, will it show a $200K credit line with no outstanding balance?

Yes, it shows up as revolving credit like a credit card.

 

[G-Man]

Yes, it shows up as revolving credit like a credit card.

So it could increase your credit score if you have no balance or a low balance.

 

[jazz4cash]

So it could increase your credit score if you have no balance or a low balance.

Yes, but I do believe credit scores are a Great Scam to monetize all the data collected by credit bureaus. I just looked at my Experian report and noticed the HELOC is a unique category. My other categories are Real Estate (1st mtg), charge card, credit card, and auto loan. I don’t exactly know how these are all scored but I believe the loans (1st mtg and auto) are favored over revolving credit accounts.

 

[kgtest]

Credit scores really only matter when you are paying your insurance premiums or looking to get some big money loans. I mean, most of us who are responsible with money will have scores in the excellent range. The folks that don't have an excellent range, have earned that score.

DTI is certainly a thing. I've heard of people on this forum needing to take a withdrawal from investments on a monthly basiss to show "income" in order to qualify for a loan.

I was told by my loan officer not to buy a car when I was shopping for my current home. I bought 2 cars and still qualified for the mortgage on my home, even without my DW and her income on the paperwork. So, everyone's situation is different. In my case I have low DTI since I had a decent income. The bankers knew I was good for the loan, and loaned it to me. I got an excellent interest rate since I had an excellent credit score for the 2 cars and the home. I've had my DTI throttle up a bit when I maxed some CCs to cover some home remodeling. My score dropped to the "good" range and the insurance companies pounced on using that as their reasoning for raising my rates. I was still approved for more CCs since my income kept rising. Now I have 100s of thousands of available credit in my credit card, and we don't even bother putting anything in DW name anymore, since her income is so low, its not worth the hassle of her being denied. WE play the CC games, banking miles and points, and sign-up bonuses.

Get the HELOC, find a banker that gives you the best interest rate if you think you will need it.We are still down 10 to 15% from market highs depending on how you were invested, so if you sell now you take that loss and lock it in, vs if you get a HELOC with a lower rate than how much your investments declined, you are temporarily locking in the rate, and can always refinance to a lower rate (Unless rates go higher). But if rates go up, and the market goes down... well, ouch.

 

[FLSUnFIRE]

My HELOC shows up as "Home Equity Loan" with available and current balance ($0) on Transunion with an account type of "Line of Credit Account", Equifax shows it as "Home Equity Line of Credit" with an account type of "Mortgage." Experian kept screwing up trying to get my free copy but both others were surprisingly accurate so I'll assume I'm ok there too.

 

[RobertTN]

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 got one right before I retired so I had W2 income and it was just easier for the bank to process. I think having a HELOC for emergency cash in retirement is a great idea.

Here is a link (2016 article) that further explains some of the benefits and compares it to a reverse mortgage: https://www.financialplanningassoci... Equity into a Retirement Income Strategy.pdf

 

[FloridaWizard]

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

One con I am wrestling with is that the HELOC bank will require homeowners' insurance, and in my case (Florida) flood insurance as well.

I intend to drop flood insurance when my mortgage is paid off later this year, so I might need to close that HELOC. With Florida insurance going through the roof, many in my neck of the woods are considering self-insuring. A HELOC would take that option off the table.

 

[G-Man]

So, I got pre-approved to go up to 99% of my LTV which is the max borrowing amount that is offered by my credit union. However, the discount rate is higher than the rate in the 80.01% to 90% LTV tier.

Discount Rate:
80.01 - 90% LTV = 8.175%
90.01 - 100% LTV = 8.400%

I'm not sure what to do here. Take the max borrowing amount with the higher discount rate or the smaller borrowing amount with the better discount rate.

Any opinion?

 

[G-Man]

So, I got pre-approved to go up to 99% of my LTV which is the max borrowing amount that is offered by my credit union. However, the discount rate is higher than the rate in the 80.01% to 90% LTV tier.

Discount Rate:
80.01 - 90% LTV = 8.175%
90.01 - 100% LTV = 8.400%

I'm not sure what to do here. Take the max borrowing amount with the higher discount rate or the smaller borrowing amount with the better discount rate.

Any opinion?

Any advice?

 

[TheWizard]

Any advice?

I refied my modest remaining mortgage balance to a low rate HELOC before I retired some years ago.
I then paid off that HELOC in due course and it's all gone now.
I've got lots of financial resources at this point in my life and don't expect ever to borrow money again, HELOC or otherwise.

Point being: there's very little reason to open a HELOC at start of retirement if there's no need for it...

 

[SonofCohoes]

Has anyone ever gotten a HELOC on an investment property (e.g., short-term beach rental) and if so, how difficult was it to obtain? We have a $100k HELOC from PenFed on our main home that has a balance of $17k.We haven't started receiving SS yet and are living on IRA withdrawals.

I’ve asked about HELOC on our rentals, no go with our bank.

 

[SonofCohoes]

Does anyone know how the HELOC shows up on your credit report? For example, if you have a $200K line of credit but have no outstanding balance, will it show a $200K credit line with no outstanding balance?

Ours only shows on our credit report when we use it, like a credit card balance would.