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A Secured Line of Credit is Great for the Golden Years

A Secured Line of Credit is Great for the Golden Years

When you buy your first home and start juggling mortgages, lawyer fees, titles, amortizations, and all of the other aspects involved in purchasing your dream property, it’s understandable that plans for your retirement years might take a back seat.

Those who are 40-50 years old and buying a home for the first time may find that when they retire, there’s a pool they’d like installed, or perhaps a trip of a lifetime they’ll have one chance to take. Others may have paid their mortgage off after 20 years, and although they’ve lived mortgage free for 10 years, they’ve found themselves a little tight for money during their retirement. In either of these cases, it’s extremely handy to have access to a secured line of credit.

A secured line of credit (secured LOC) is backed by collateral, for which most people tend to use their property. When the lender has this kind of security behind a loan, interest rates are almost always lower and you’re allowed access to more money because you’re backed by your biggest asset – your home.

It may be hard to add yet another task to your “to-do” list as you go through the process of becoming a home-owner; however applying for a secured LOC at this time is a great idea. For example, a secured LOC will give you access to low-interest funds when you want that kitchen update, or if you hit a rough financial patch.

When you need those extra funds, it’s easy to reach for that high-interest credit card, which is a great “quick fix.” However with a secured LOC in place, you can access more money at a lower rate instead of racking up credit card debt. Similarly, if you find yourself short on money in your golden years a secured LOC will be there for you so that you can keep the equity in your home instead of arranging a reverse mortgage.

A reverse mortgage, or HECM (home equity conversion mortgage) is a loan for older home-owners, and it doesn’t require any monthly payments. Borrowers still need to pay property taxes and insurance; however with the HECM, people in their golden years can access the equity they’ve built in their homes and defer payment of the loan until they sell, move out, or pass on.

The downside of a reverse mortgage (HECM) is that although it gives you a break during retirement, it heaps a hefty interest onto the loan balance each month in order to compensate for the lack of mortgage payments.

It’s common for people to reach for those high-interest credit cards when they need extra funding, and it’s even more common to pay off those cards with a reverse mortgage later in life. However with a secure LOC in place, there’s always access to alternate low-interest funding.

Keep the paws off the credit cards – and the equity in your home – by putting a secure LOC in place; think of it as just another section of the safety net to put into place while building your nest egg for retirement.

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