Why a HELOC and Retirement should Date.

Many financial planners encourage seniors and those nearing retirement to pay off their mortgages, especially if they have lived in their home for over twenty years. Once you go into retirement, you definitely don’t want to have to worry about losing your home due to an inability to pay the mortgage. While this is sound advice for many individuals, retirees should consider getting a home equity line of credit (LOC) if they are able to do so.

In today’s market, many people can borrow money at as little as 3.5%. With rates this low, rather than keeping so much net worth in your primary home, it could be a great idea to secure LOC, just in case. The big question for anyone considering opening an LOC is whether or not they qualify. Qualifying for a loan or LOC generally has two requirements: equity in the home, and ability to repay with interest. As long as you are not “underwater,” meaning you owe more on your home than it is worth, there is a good chance there is some equity available to you, even if it isn’t much. Your ability to repay, could require a more creative solution, since it you could be living off of savings, or on a fixed income.

The problem is, will you qualify? And that's where it gets tricky. Qualifying for a loan or line of credit (LOC) requires two things: one, that the home has equity (that is, you don't owe more than what it's worth, as is now the case with some people who are considered "underwater."). If you have paid off a significant amount of your mortgage, though, chances are there is some equity there, even if it's not a lot.

When lenders decided whether or not to lend, they look only at income and credit scores, not at assets. You may need to provide proof of income in addition to social security and retirement benefits. Wherever your assets are held, (i.e. investment house/broker), arrange with them to send you monthly payments to cover the difference between your income and the minimum required by your bank. For example, if your social security is $1,900, and your lender requires $7,500, you can have your broker send monthly distributions to you of $5,600. Continue doing this until the loan closes. Once it does, discontinue the distributions, and redeposit the funds you don’t use within 60 days.

Having the LOC doesn’t mean that you have to use it, but it could come in handy should you ever need a sudden $10,000 for something important like medical treatment or home repair. Double check your numbers, and be sure not to use the LOC for daily living expenses, and rather than selling off your valuables, or wiping out your personal accounts in a time of need, you would have the option of using your LOC as a cushion.

#HomeEquity #retirement