Transcript:
Easan Arulanantham:
“When should I take out a home equity line of credit? Is it worth having, just to have access to a source of money?”
Tom Vaughan:
Yeah, this is a really interesting thing. I think a lot of people don’t realize how hard it is to get even a refinance on a home done, once you’re in retirement. So this is just a weird quirk, that I’ve dealt with this with many, many clients. Once you’re in retirement, even though you have all this money, you probably have more money than you’ve ever had in your whole life, and you have all this equity in your home, and then you go down to try to refinance or get a new home equity credit line, and they tell you no, because you don’t have enough income. You can have millions of dollars of assets, but your income you should try to keep fairly low. You don’t really want a lot of income, because you have to pay taxes on it. And so you kind of keep your if possibly try to keep your incomes fairly low to kind of match your lifestyle. And ultimately, from a tax standpoint, the ideal scenario is to have the exact amount of income you need coming through, so you’re not paying XX tax.
Everything else can go into unrealized gains, or tax deferred gains, or tax free gains. That’s a perfect tax scenario. But the mortgage guys struggle with that. And I’ve seen some of the strangest things where we had to set up a $2,000 a month distribution from an IRA, somebody didn’t even need, just to show an income source inside that mortgage. And so, that’s why I always tell people for a home equity credit line, which is essentially a check-writing capability against your home; that’s probably the best way of taking a look at. Most of the times that rates are variable, and there’s all kinds of different programs. But I might take a look at that, if you’re not retired yet, of getting that set up just before retirement. You don’t need to use it. If I had a $50,000 or $250,000 home equity credit line just sitting there, it just be like part of your overall emergency funds. You wouldn’t use it first, that’s for sure, because it has a cost. You can’t even write off some of that now. But nonetheless, you know, getting that done prior to retirement, make some sense to me, again, if possible. And if you’re on retirement, I probably still try to go through the process of having something like that set up. Again, it’s a great piece of the overall emergency scenario. And just having something there in case it’s really needed. Because if you get into that emergency situation could be a healthcare scenario or whatever. That’s not the time to be running around trying to get a home equity credit line; it’s often nice to already have that in place. Most times there’s no cost to keep them open, or even to set them up. There’s a lot of them that are free or very, very low cost. I think that’s a great insurance policy personally, just to have just in case.