Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW
Ask Money


Chris Farrell Nov 23, 2009

Question: I recently paid off my mortgage ($55,000) and consulted with my local bank about how to best invest discretionary funds now that mortgage is paid. Bank’s financial advisor, no fee, advised me to take out a HELOC, home equity line of credit, for the maximum available b/c interest is low, prime plus 1% and it is a good thing to have in case of an emergency. I am 67; taking my SS benefit, working two part-time teaching jobs as adjunct faculty; total annual income I currently about $50 thousand. I am reluctant about having any kind of lien against my house, have no need for additional cash at this time, have about $10 thousand in easy to access cash assets right now. Please advise if HELOC is a wise decision; I have not yet signed at a closing. Pamela, Providence, RI

Answer: Congratulations for owning your home free and clear. It must be a nice feeling. It’s certainly a financially savvy move to be done with the mortgage. I don’t get the advice. If I were you, I would invest your discretionary funds in Treasury bills and notes, savings account and CDs, I-bonds, and similar safe parking places for money. Why not build up your savings?

Yes, a home equity line of credit is something of an emergency safety valve. But savings is even better. I’d focus on savings rather than borrowing. The former benefits you; the latter the bank.

Now, if you do decide to take out a HELOC out I would not go to the maximum amount. That’s creates the possibility of falling into financial trouble. At most I’d take out a small one, again, just to smooth you over in a pinch.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.