Life Stages
Topics
Home Equity Loan (HELOC)
Home equity lines of credit (HELOCs) provide revolving credit secured by your home’s equity. They work a bit like a credit card—you get a credit limit, borrow only what you need, and pay interest on the amount you use—but usually at a lower interest rate because your home is collateral.
​
How a HELOC works
-
Credit limit: Based on your home’s value minus existing mortgages, often up to about 80–85% combined loan-to-value.
-
Draw period: Typically around 10 years, when you can borrow, repay, and borrow again; many lenders require interest-only payments during this time.
-
Repayment period: After the draw period ends, you can no longer borrow and must make principal + interest payments, often over 10–20 years.
-
Variable rate: Most HELOCs have variable interest rates, so your payment can rise if rates go up—important for retirees on fixed incomes.
​
Potential advantages for retirees
-
Lower rates than credit cards or many personal loans.
-
Flexible access to funds for ongoing or irregular expenses (e.g., phased home improvements, medical costs, or smoothing cash flow between income sources).
-
You pay interest only on the amount actually borrowed, not the entire credit line.
​
Key risks and trade-offs
-
Your home secures the loan—missing payments can ultimately put you at risk of foreclosure.
-
Payment shock when the draw period ends and principal payments start, which can strain a fixed retirement budget.
-
Variable rates mean future payments are uncertain.
-
Retirees must still qualify based on income (Social Security, pensions, investments) to show they can handle the payments.
​
When a HELOC may make sense
-
You have solid home equity and reliable retirement income.
-
You need flexible, ongoing access to funds for planned expenses, not to cover chronic budget shortfalls.
-
You’re comfortable with the risks of using your home as collateral and have a plan for handling higher payments later.
​