How Do You Get Your Dream Vacation Home? A Good Plan

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(This article was originally published in NextMove, our weekly newsletter on the housing market. Sign up for it using the box below.)

This is Jon Reed with NextAdvisor. We talk a lot about financial products: Mortgages, home equity loans, high-yield savings accounts, certificates of deposit. They’re all ways to borrow money, or save money, or turn money into more money.

But it isn’t the money that’s important. It’s what it can get you.

Take this story of a 79-year-old grandmother.

Sally Shea wanted to buy a vacation home – a camper next to her daughter’s on Lake Winnipesaukee in New Hampshire. She could withdraw the $150,000 she needed to buy the camper from her IRA all at once. But that would significantly increase her income for the year,  raising what she paid in taxes and future Medicare premiums.

So her financial planner offered another option: Use a home equity line of credit, or HELOC, secured against her home. She could spread the cost over two years, reducing the tax hit.

It’s a simple maneuver – borrowing money temporarily with a plan to pay it back – to make your life goals possible without jeopardizing other important things. People make smart choices like this every day. And it’s not just about money. It’s about making the life you want possible.

Here’s what I love most about this story:

She had a clear goal in mind. The objective was concrete: A vacation home where she could spend the summers cooking waffles for her grandkids. 

She talked to an expert. Shea had an established relationship with a financial planner who was able to spot the potential problems – the threat that withdrawing all of the cash upfront would cost her more in the long run – and come up with a solution. He worked to ensure Shea was able to achieve her dream without jeopardizing her long-term financial security.

She had a plan with both a beginning and an end. It’s easy to pay for something with a credit card or a loan. But you should also have a strategy for paying that money back. In this case, she knew she could withdraw more money from her IRA just months later, and pay it all off quickly. It helped that interest rates for HELOCs were particularly low at the time, keeping her costs low when she was carrying a balance. (They’ve risen significantly since.)

Borrowing money can be a headache, and if you aren’t careful, it can morph into a nightmare.  That’s especially true if you’re tapping home equity, because if you don’t pay the money back, it can cost you your home. 

But if you have a clear plan, it’s a tool to help you achieve the things that really matter in life.