How an Unusual Buying Strategy Saved This Retiree $8,000 on Her Dream Vacation Home

An image of a vacation home in New Hampshire. Courtesy of Sally Shea
In late 2021, Sally Shea used a HELOC to purchase this camper on New Hampshire’s Lake Winnipesaukee.
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Prior to the COVID-19 pandemic, Sally Shea, a 79-year-old doting grandmother with a passion for art and history, was planning on moving into a retirement community and simplifying her life. 

But after being isolated for so long, she had a change of heart. She decided she wanted to keep her house but also get the vacation spot she’d always dreamed of: a camper on New Hampshire’s Lake Winnipesaukee.

“I went up to visit my daughter and my two grandchildren. She happened to mention that the camper next door was for sale,” Shea said. “I didn’t think anything of it until I got home and thought, ‘Wait a minute, that could be mine.’” 

There was one problem: Buying the camper using money from her IRA would cause her to pay a lot more in taxes and potentially increase her Medicare premiums. 

So she worked with her financial planner and found a solution: a home equity loan or HELOC.

Today, Shea is busy making memories with her family at their campground. On a Sunday morning in the summer, you can find Shea cooking up waffles for her family. “At 11 o’clock, everyone knows to come over to my place for waffles. I love it,” Shea says. 

The Problem with Paying Cash

With the help of her long-time financial planner, Kevin Williams, founder of Full Life Financial Planning, she found a way to fit her dreams of a vacation home into her financial picture. 

By the fall of 2021, Shea had already withdrawn the minimum required distribution from her IRA. To pay for the camper, Shea would’ve had to take out an additional $150,000 from her retirement account. 

With such a big purchase, Williams’ first priority was ensuring Shea’s long-term financial security. After that, Williams focused on managing Shea’s taxes and Medicare costs. 

“She’s in a relatively low tax bracket, but taking that additional $150,000 out of her IRA was going to nearly double her tax expenses,” Williams says.

The third piece of the puzzle was healthcare. Shea is on Medicare and the cost of her premiums are based on the previous year’s income. “With this withdrawal, she was going to be put on a significantly more expensive plan because of this one tax year we would be creating,” Williams says. 

So Williams found a better way. 

Why She Chose a HELOC

The solution was to spread out the payments.

“I knew there was no way that we could eliminate all of these costs, but we could make it incrementally better for her by spreading that $150,000 over multiple years with a home equity line of credit,” Williams says. 

Instead of withdrawing those funds from her retirement account, Shea was able to get a home equity line of credit (HELOC) to purchase her camper. Her primary home was already paid off so  tapping into its equity offered Shea a bridge loan to spread out the tax burden and increased Medicare premiums. 

“She ended up saving roughly $8,000 overall. That’s not just a lump-sum of cash she saved. We can visualize it as her saving three to three and half years of real estate taxes and homeowner fees on her vacation property,” Williams says. “Those are meaningful savings.” 

When Tapping Into Your Home Equity Makes Sense

Like in Shea’s case, tapping into your home equity can be a great option as long as you’ve got your ducks in a row. 

If you’re considering borrowing with a HELOC, make sure you know the why behind what you’re doing. Even though a HELOC may function a bit like a credit card, experts caution against treating it like one. When the borrowing side is so easy, you need to pay careful attention to how you’ll be paying  it back. 

Since Shea was able to withdraw from her IRA again at the start of 2022, “She was only borrowing the money for effectively three months. With the IRA distribution, she repaid the HELOC and accrued only $1,000 of interest,” Williams says. 

Though everyone’s situation is different, developing a clear strategy, like Williams did for Shea, is something everyone can learn from. 

How a HELOC Works

When borrowing with a HELOC, you use the difference between what your home is worth and what you owe on your mortgage as collateral. 

Similar to a credit card, a HELOC offers you a revolving line of credit. You only pay interest on the money you actually used. HELOCs typically have variable interest rates, though, which means your monthly payment is subject to change if interest rates fluctuate

It’s worth noting that when Shea took out her HELOC, interest rates were much lower than they are today.

“At this point, rates have risen and with a HELOC, rates typically aren’t fixed. If you’re not paying attention to where the interest rate is going, it can be easy to lose sight of what that carrying cost is,” Williams says.

Pro Tip

Inflation and rising prices can drive up monthly payments for a HELOC. When considering borrowing with a HELOC, ensure you can comfortably afford the payments as rates rise.

How To Tell If It’s a Good Idea

The most common uses of a HELOC are for home improvement projects or debt consolidation

“People are taking advantage of the HELOC’s lower rate to consolidate existing debts and monthly payments,” says Rob Cook, vice president of marketing, digital and analytics for Discover Home Loans. 

However, if you’re looking to use a HELOC to consolidate debt, experts recommend you get to the root of the problem first: your spending habits. If you take out a loan to consolidate your debt without addressing the behaviors that got you there in the first place, you’re likely to end up right back in debt.

When To Be Cautious

Beyond home improvements and debt consolidation, some homeowners, like Shea, are utilizing their home equity in creative ways. At NextAdvisor, we’ve seen homeowners use HELOCs to help pay for cars, college, and, in Shea’s case, second homes. 

Experts recommend against tapping your home’s equity just because you can. Ensure you know what exactly it is you’re going to do with a HELOC before you commit to borrowing. 

“Don’t dig the hole until you know what you’re going to do with the dirt,” Williams says. “I always recommend people approach borrowing with a plan in place as to how and when it will be paid down.” 

For Shea, her summer home was less about financial strategy and more about having fun and spending time with her family. 

“The opportunity to buy my first summer place at 78 was very exciting, very thrilling,” Shea says. “You know it’s kind of hard to have a real thrill at my age and Kevin made it happen.” 

Shea looks forward to more summers up on the lake, where she can paint murals and chat with her grandsons over waffles. 

“A couple years ago, I was thinking that when I turned 80, I would go into a continuing care facility in my hometown. But now turning 80 feels more like turning 30 for me. So for now, I’m thinking, ‘Nope, I’m going up to the campground,’” Shea says.