NerdWallet: Smart ways to use a HELOC in retirement

by | Oct 11, 2022 | Stock Market

This article is reprinted by permission from NerdWallet. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. If you’ve worked hard to pay off your house, taking on mortgage debt in retirement may sound as appealing as getting chained to a 9-to-5 desk job.

But used wisely, a home equity line of credit, which lets you borrow money against your home, can be a powerful tool to preserve the longevity of your financial portfolio. Here’s what you need to know.How to use a HELOC in retirement With a home equity line of credit, or HELOC, you can draw the amount of money you need, up to the credit limit, when you need it. Typically, you have 10 years to draw money and pay interest only on the amount you draw. Then you have another 20 years to pay back the balance, plus interest. A HELOC is not a way to support an otherwise unaffordable lifestyle. Instead, it’s an alternative to manage your cash. Here are a couple of smart uses.Fund big purchases or projects Using a HELOC lets you spread the cost over several years, so you don’t have to withdraw a huge sum all at once from an investment portfolio, says Anthony Watson, a certified financial planner and founder of Thrive Retirement Specialists in Dearborn, Michigan. Taking a big chunk from retirement accounts can have tax implications — it could even bump you into another tax bracket — and you lose potential investment gains on the money you draw. HELOCs usually have lower interest rates than personal loans and credit cards. In addition, the interest may be tax-deductible when used for home improvements, said Jon Giles, head of consumer direct lending at TD Bank, by email. Before drawing from a HELOC, set a time frame for repayment that meets your goals, not just the lender’s requirements. You might …

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