home equity

3 ways retirees can tap into their home equity

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Apply for a home equity line of credit
Apply for a home equity line of credit | Monkey Business Images/Shutterstock.com

Apply for a home equity line of credit

A home equity line of credit, or HELOC, generally comes from a bank, says Barry Sacks, a practicing tax and pension lawyer in San Francisco. Unlike a HECM, there is no restriction on the age of the borrower.

"The amount you can borrow as a line of credit depends on the value of your home, your income, credit rating and the bank's policy," Sacks says. "The interest rate for this loan can be fixed or variable, depending on the lender."

Although your HELOC won't increase automatically, Sacks says in some cases the borrower can negotiate an increase in the amount available.

But, between you need to quit borrowing against it and start paying it back from seven to 10 years after securing this type of line of credit. You must repay both the principal and the interest.

RATE SEARCH: Check out Bankrate.com for the best home equity line of credit.

The lending bank can cancel a HELOC at any time, and banks did this in a big way during the Great Recession. That can be a significant risk, especially for a retiree who may need the money at just the point in time when the cancellation occurs, Sacks says.

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