Home equity lines of credit can be a financial lifeline when emergencies happen.

But waiting until retirement to set one up can throw homeowners a real curve-ball.

An older adult couple living in a million-dollar home called it quits on their careers after their mortgage was paid off.

They considered applying for a $600,000 home equity line of credit before retiring but decided against it in the end. They figured if they ever needed to access a large amount of cash, they could easily get it because of the equity they had in their home. A year later, they decided they wanted to spend less time in the city and more time enjoying the peace and quiet of lake life. They wanted to buy a cottage. 

Bad news came when they applied for a mortgage: their retirement income wasn’t enough to qualify. Had they secured that home equity line of credit before retiring, however, they could have used that to pay for their slice of heaven by the water.

Whether retirement is on the horizon or you have dreams of giving up corporate life for self-employment, it’s important to have the conversation with a professional about shoring up financial safety nets, including a home equity line of credit, before making the leap.

How does a home equity line of credit work?

A home equity line of credit is secured against the value of your home but approval is based on your income at the time you apply for it. 

You may never need to tap into it, but if you do, the interest rate with a home equity line of credit is better than with any credit card or unsecured line of credit. It really is the cheapest line of credit on the planet.

Paying off a home equity line of credit also comes with greater flexibility. The balance can be paid in full, unlike a mortgage, or you can choose to pay the interest only.

Home equity lines of credit also remain in place as long as you own your home.

When should you get a home equity line of credit?

Most people are never offered a home equity line of credit by their bank, but they should speak to a mortgage professional about applying for one as soon as they’ve built up equity in their home — and while they’re still earning a secure and stable salary.

The key is to be prepared for whatever life might throw your way, and that includes getting a home equity line of credit in place sooner than later regardless of career ambitions or retirement plans.