Part Three: Navigating Your Way Forward Using Property Equity Through Retirement

In the first two installments of this series, we’ve looked at equity and strategies around using a Home Equity Line of Credit (HELOC), also referred to here as a Line of Credit.  Let’s now look at HELOC considerations toward the end of one’s career and into retirement.

Not all HELOCs are created equal.  Selecting a lender whose products work well through retirement can be necessary at this stage.  Having the flexibility not to make a payment if there’s room between the balance and the limit of the Line of Credit can be helpful later in life.  Again, it’s recommended to at least make the interest payment, but there are times when being able to manage cash flow in this way can make financial sense.

Couples borrowing together require special considerations too.  Selecting a lender offering the continued use of a mortgage and line of credit after one partner passes away protects the surviving partner.

Though reverse mortgages are available to retirees and can be a good option for some to access equity for expenses, investments, or to supplement income, and though Lines of Credit have greater approval requirements, a HELOC may still be preferable as:

• There is no minimum use required on a Line of Credit, you only pay interest on what you need
• The rate of interest on a Line of Credit can often be lower than that of a Reverse Mortgage
• The entire amount of the Line of Credit can be repaid without penalty at any time
• Some Lines of Credit are as accessible as chequing accounts, accessing Reverse Mortgage Funds can be more difficult
• Reverse Mortgages come with set-up fees in addition to closing costs and have minimum required withdrawals
• Reverse Mortgages don’t always provide access to as much equity as a Line of Credit can
• Reverse Mortgages are limited to principal residences

As mentioned previously, using the equity in your home can potentially preserve access to Old Age Security.  Liquidating investments can increase your taxable income if the investment gain is taxable.  Increasing your income can impact your ability to collect Old Age Security if your income is bumped above the eligible income amount.  Accessing equity in your home has no impact on your taxable income and preserves your investments from having to be liquidated for use, allowing them to continue appreciating instead.

Always keep in mind, As with any refinance or property purchase, typical closing costs apply when securing a Line of Credit on a property.  In some cases, a fee is charged for the chequing account associated with a Line of Credit, but there are often options to have monthly fees waived.

I hope this series has inspired some ideas and I would be happy to review your requirements to assist you in planning for the future with this tool.  Feel free to reach out at any time for more information.

Image Credit: Tierra Mallorca on Unsplash