This week’s theme on the Retirement Quick Tips Podcast is: How Pre-Retiree Homeowners Can Benefit From Higher Interest Rates.

Today, I’m talking about how to handle a HELOC or a home equity line of credit in this current higher interest rate environment. 

Tapping into your home equity in years past made a lot more sense if you needed to make a large purchase - like a new car, or a home remodel, and you didn’t already have the cash on hand to do it. Since interest rates were so low for so long, as long as you had equity in your house, it made a lot more sense than selling other assets to fund large purchases. 

But since rates have shot up, the math for tapping into a HELOC or any sort of cash out refinance has changed significantly. Rates are often higher than current mortgage rates - currently averaging around 8%, and many of these loans are variable, so if interest rates head higher, your HELOC rate and your payments will climb along with it. 

The point here is that since the math doesn;t work any more with HELOC rates being so much higher, it changes the decision making process. For many, unless it’s necessary, the smart thing to do would just be to hold off on the big purchase. It’s anyone’s guess how long rates will stay higher and it’s possible that we won’t see rates drop back down to the previous 3% range for years. 

Higher rates may also justify selling other assets to pay for a large purchase, or saving up more cash and investing 

If I was planning to make a large purchase in the next 3-5 years, I would save up as much as I could every month, and invest it in something conservative - like a portfolio that has mostly bonds or CDs. I can earn over 4.5% on a money market fund right now, and if rates start to drop, I can migrate that savings to lock in the rate buy purchasing CDs that match my timeline for whatever purchase I’m saving for. 

With rates on HELOCs high, a little patience and a lot of added savings will help keep interest costs lower, and provide more flexibility as well. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance