(Three-minute read time)
As you approach retirement in Ontario, strategic financial planning becomes crucial to ensure a smooth transition from employment income to retirement income. One valuable tool in this planning process that often goes overlooked is a Home Equity Line of Credit (HELOC). This article discusses the basics of HELOC and why it's a wise pre-retirement move. Additionally, we'll give you tips on how to improve your chances of qualifying for a HELOC and compare using a HELOC versus pulling from your investments.
Whether you're looking to bolster your financial flexibility, safeguard against unforeseen expenses, or maximize your retirement readiness, this article will illustrate why a HELOC might be the key to unlocking a more secure and prosperous retirement.
What is a Home Equity Line of Credit (HELOC)?
A Home Equity Line of Credit (HELOC) offers homeowners a flexible and cost-efficient way to borrow money against their home equity—the part of your property's value that you own outright. Unlike a primary mortgage where you receive a lump sum and repay with fixed installments, a HELOC functions similarly to a credit card: it provides a revolving credit line up to a certain limit, allowing you to borrow, repay, and re-borrow funds as needed. Interest is only paid on the amount borrowed, not the entire credit limit, and you can repay the balance at any time without penalties.
A HELOC can be part of your first mortgage or set up as a separate second mortgage. Combining the HELOC with your primary mortgage may result in a new interest rate and will reduce your debts into one package. On the other hand, adding a HELOC as a second mortgage will keep your primary mortgage intact, avoid any breakage fees, and retain your original terms while still providing access to additional funds through refinancing.
HELOCs are usually available with conventional mortgages (those with at least a 20% down payment) offering substantial funds based on property value. You can typically borrow up to 65% of your home's value through a HELOC, though the total debt secured against the home can be up to 80%, maintaining a minimum of 20% equity.
4 Reasons Why You Should Get a Home Equity Line of Credit (HELOC) Before Retirement
Securing a Home Equity Line of Credit (HELOC) before retirement can offer several timing advantages that align with pre-retirement financial planning. These advantages include:
1. Easier Qualification:
While you're still employed, your regular income can make it easier to qualify for a HELOC. Lenders typically require proof of stable income to approve a HELOC application, and the income verification process can be more straightforward for those who are employed compared to retirees who may have a more complex income structure.
2. Fraud Prevention:
Keeping a mortgage or HELOC on your home helps protect against title fraud. If your home has a mortgage attached to it, even with no balance, it's harder for fraudsters to take out more loans against it. One of the reasons is that financial institutions usually check with the home's owners before approving additional borrowing.
3. Convenience:
Having a HELOC account set up before retirement will save you stress. If you need to access funds quickly, you can get immediate access.
4. Debt Consolidation:
You can use a HELOC to consolidate high-interest debt, potentially reducing your monthly financial burden and interest payments, and setting up a more comfortable retirement.
...
To read the full article visit: https://www.wealthtrack.ca/blog/home-equity-line-of-credit-before-retirement
Looking to boost your retirement income? Book a call with a Professional Ontario Broker today to explore your HELOC options – no cost or commitment: https://www.wealthtrack.ca/discovery
