Have you considered setting up a line of credit against your home?
We’ve been having this conversation with many of our clients lately who are thinking about or are about to retire. Here’s the reasoning behind it. Inflation. Volatility. Bears and Bulls. We’ve been hearing it all in the news. There’s a lot to unpack in the markets these days and a loan can provide a little extra protection.
Why a home loan? If you own real estate and have built equity in it — which is the difference between the value of your home and what you still owe on your mortgage — you can use this equity to secure a loan. With a home equity line of credit, you can borrow up to a certain amount, which will be your credit limit. You can borrow as much or as little as you want, as long as it’s within that limit. You can repay what you withdraw at any time, and borrow again and again whenever the need for money arises. Moreover, your home serves as collateral, which reduces the risk for the lender and often means lower interest rates compared to other loan types.
Why before retirement? You must go through an approval process before you can borrow against your home equity. Since income is a huge qualifying factor, we suggest taking this out before you retire when you are still generating income. If you already have a home loan, consider increasing it to as high as 65% of your home’s value whereby you’ll have access to more without a fixed repayment schedule.
Do I really need a loan? You might not, but the idea here is to protect yourself in a market downturn. For example, if you are relying on your portfolio for income, instead of turning a paper loss into a real loss, you can use your line of credit in the interim and wait for prices to go back up. The line of credit gives you the ability to “ride it out.” Then, you can sell at a profit when the market recovers and pay off the line of credit when it makes sense.
This provides a great deal of peace of mind, knowing that you have access to it if something unexpected happens.
We are happy to assist you with any questions. If you would like help with protecting your investments while riding out the market downturn, please connect.