Home Equity Line of Credit (HELOC)
- MCM Mortgage
- Aug 20
- 2 min read
What Is Home Equity?
Home Equity is the difference between the amount you owe on your home and its current value. For example, if you own a home worth $600,000 and owe $150,000 on your mortgage, your available home equity is $450,000. If you've paid off your mortgage, your home's current value is your home equity.
Many seniors may not be familiar with using home equity as a retirement tool. The same way you can use your home equity to take out a line of credit against your house to remodel your kitchen or add a pool, you can also access that equity to help you see you through your retirement years. Instead of thinking about selling your home and downsizing to fund your retirement plan, why not stay where you've lived for decades and still fund your retirement plan?
How Can You Access Home Equity?
Most likely, you won't be able to access all of your home equity at once, but that can be a good thing. About two-thirds of homeowners over 65 own their homes free and clear without a mortgage and home equity has the potential to enhance a retiree's financial security. Some trapped equity is an important security blanket against unexpected out-of-pocket healthcare expenses that may pop-up during retirement.
What is a Home Equity Line of Credit (HELOC)?
A Home Equity Line of Credit (HELOC) is a variable rate line of credit that stays open for a certain period of time. During this window, you may withdraw money for significant expenditures or living expenses.
A HELOC has no closing costs, and rates can vary depending on your creditworthiness, current economic conditions, and the amount of equity in your home. You don't have to repay any money on your HELOC during the draw period. If you do take money out, your line of credit will readjust to reflect the new amount.
Is a HELOC the Same as a Home Equity Loan?
The short and quick answer is NO!
A Home Equity Loan, also known as a second mortgage, allows homeowners to tap into about 80-85% of their equity. Once you take the loan, which includes closing costs, and has a fixed interest rate, you get a lump sum amount that you must immediately begin paying back. Average interest rates will depend on your credit score, equity situation, and debt.
Most home equity loans have 10 or 15 year terms, meaning you will need to pay back the amount within that timeframe. If you're using the money to improve your home or make it more accessible or comfortable for senior living.
HELOC Quick Overview
Minimum Credit Score Required | Yes, minimum 680 credit score required |
Monthly Mortgage Payment Required | Yes, for 30 years, interest-only for 10 years, then fully amortizing over 20 years |
Minimum Age | No |
Proceeds Distribution Method | Line of Credit, which can be drawn within the first 10 years |
Borrower Still Owns the Home | Yes |
Unused Line of Credit Grows Over Time | No |
Let's Talk About Your Retirement Solutions
If this Home Equity Line of Credit article was insightful and has you motivated to see the full range of your retirement options, it's time to meet with one of our experienced HELOC Specialists.
MICHAEL RANDLE
Mortgage Broker
MCM Mortgage, LLC
NMLS #1387865
214-733-1058
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