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Decoding the Home Equity Line of Credit (HELOC): Weighing the Pros and Cons for NiSource Employees

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'For NiSource employees, a Home Equity Line of Credit (HELOC) is a great way to tap home equity for convenience and flexibility, but it is important to understand the risks involved, including the variable rates and the fact that you may be putting your home at stake, says Paul Bergeron, a representative of The Retirement Group, a division of Wealth Enhancement Group.'

'A HELOC can indeed be a useful tool for the financial flexibility that NiSource employees may require, but only if it is used correctly to support long-term retirement goals, advises Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement Group.'

In this article, we will be discussing:

1. The advantages and the flexibility of a Home Equity Line of Credit (HELOC).
2. The pros and cons of HELOCs and things to consider before applying for one.
3. Other ways to get financial flexibility instead of a HELOC.

Homeownership, including for those who work for NiSource companies, provides an opportunity to tap the value of the residence. One way of tapping this ownership stake is through a home equity line of credit (HELOC). While a home equity loan provides a lump sum upfront, a HELOC allows you to borrow smaller amounts at a time. This type of borrowing structure is very useful because you are only required to draw the funds you need at any particular time, thus helping you manage your finances better.

It can be used for home repairs, college tuition, or any other purpose you need the money for, and a HELOC can be a useful tool in tapping the equity in your home. HELOCs have other advantages, which include lower APRs than credit cards, the ability to deduct interest payments to the IRS, flexible withdrawals and repayments, and helping to boost your credit score. But there is the other side, and it includes the following: the loan has to be secured by your home, you will stake your home equity, the interest rates may rise, and you might end up accumulating a big balance fast.

Understanding a Home Equity Line of Credit (HELOC)

A HELOC is a type of credit that you can borrow at a time of need. Like credit cards, HELOCs are assets that have a variable interest rate, which means that the monthly payment will change according to the rate at the time of borrowing. Typically, a HELOC has a maximum limit that is tied to the equity in your home. You can choose to take part of it or the whole amount of your line, and you pay interest only on the amount that you have borrowed. For instance, if you have not used any of your credit line, you will not be required to pay principal or interest on the credit line.

Benefits of a Home Equity Line of Credit (HELOC)

If you are a homeowner with a lot of equity in your home, then a HELOC has several benefits that make it worthwhile to consider.

Access to Lower APRs:

Although overall mortgage interest rates have risen significantly since 2022, some of the best HELOC rates are still generally lower than those of credit cards. This makes HELOCs good for debt consolidation or for financing ongoing renovation projects.

Potential Tax Deductions:

The Tax Cuts and Jobs Act of 2017 did not eliminate the ability to deduct the interest on a home equity line of credit (or home equity loan) so long as the money is used to fix the home. To qualify for this deduction, the interest must be used to ‘buy, build or improve the home that is secured by the loan.’ There are certain thresholds and requirements for deductibility and the itemizing of deductions is required.

Flexibility in Borrowing:

The main advantage of a HELOC is that the money can be spent when it is needed. One disadvantage of home equity loans and personal loans is that they provide the borrower with a lump sum amount of money; a HELOC, however, allows the borrower to take money when he or she needs it. This is particularly useful where the amount of money that will be required for the renovation or repair is not well defined because it enables the borrower to make smaller monthly payments if he or she requires less than expected.

Repayment Flexibility:

HELOCs are usually flexible as to the payment of the amounts drawn. The life of your HELOC can also vary based on the amount of money you want to borrow and the lender you are working with. Some HELOCs permit you to make payments during the draw period towards the balance, though.

Potential Credit Score Boost:

A HELOC can help improve your credit score by showing that you make timely and regular monthly payments. Payment history and credit mix are important components of your credit score, and managing a HELOC responsibly can help improve your credit profile.

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Considerations of a Home Equity Line of Credit (HELOC)

Although HELOCs have their advantages, it is crucial to know about the considerations and potential drawbacks that come with them.

Home as Collateral:

When taking a HELOC, you are putting your home on the line. Although this can lead to lower interest rates, it also comes with more risks. Missing monthly payments can have severe consequences as your home is at stake.

Variable Interest Rate:

Home equity loans have a fixed interest rate, while HELOCs have a variable interest rate. This means that your interest rate will change with the Federal Reserve’s actions. Even if you get a HELOC with a low rate, it is important to be ready for the rates to change in the future.

Risk of Overspending:

One of the downsides of HELOCs is the tendency to spend money impulsively because of the freedom that comes with them. During the draw period, which is characterized by interest-only payments, borrowers may draw cash without considering the long-term effects of their actions. When you begin making payments during the repayment period, you may be surprised at the increase in your payments if you haven’t set aside funds or created a budget, as you would during the draw period.

Reduction in Home Equity:

A HELOC is, in fact, a loan that allows you to borrow money from your home equity. You will be paying money to your home equity account when you use a HELOC. As for the home values, there is a possibility that you may end up owing more on your home than it is worth, especially if the housing market is not doing well. Also, having an outstanding HELOC may limit your ability to get more borrowing from your home equity.

HELOC Repayment: How It Works

The repayment of HELOC is quite unique and the required payments and methods of calculating them change over time. Generally, a HELOC has two main phases: The draw period and the repayment period. You are required to make minimum monthly payments of only the interest during the draw period that usually ranges from 5 to 10 years. The amount you are likely to pay will increase every time you withdraw more money from the credit line since the interest will be charged on the higher balance. The payment will also change with the change in the interest rate. Some HELOCs permit you to make payments during the draw period from the balance, though. After the draw period, you transition to the repayment period, which can go up to 20 years. In this phase, you are expected to make payments that will cover the interest and a part of the principal amount. This means that the payment will be different during the draw period and when the draw period ends and the repayment period starts. Although not common, some HELOCs have a balloon payment provision that requires the borrower to make a balloon payment at the end of the draw period to settle the loan. It is, therefore, important to check on the terms of your loan so as not to be caught unawares by a large payment duty.

Alternatives to a Home Equity Line of Credit (HELOC)

However, not everyone may find a HELOC to be the best choice for them. Look at these loan alternatives when choosing the one that is right for you.

Home Equity Loan:

Home equity loan is the same as HELOC, but you will not receive the credit line; you will receive the money in one sum. A home equity loan has a fixed interest rate and a set repayment period, which makes the monthly payments constant. Home equity loans might be suitable for you if you need the money upfront and know how much you need.

Cash-Out Refinance:

A cash-out refinance is when the mortgage is replaced by a new one with a larger balance. This kind of refinance provides you with up to 80 percent of the value of your home in cash. For instance, if your house is $400,000 and you have a balance of $200,000, you can get a cash-out refinance of up to $320,000, which would give you $120,000 in cash (excluding closing costs).

Personal Loan:

A personal loan has a fixed monthly payment, a fixed interest rate, and a lump sum payment. Personal loans are unsecured, and you do not have to put your home on the line to get one. Personal loans have higher rates than home equity products but are easier to apply for, and you can get them online. They are ideal for people who do not want to tap their home equity.

In conclusion, HELOCs are a type of home loan that allows homeowners to tap their home equity, but there are other considerations that should be made before applying for one. As with any other financial product, HELOCs have their pros and cons, which include lower APRs and tax deductions as advantages and the use of your home as collateral, variable interest rates, overspending, and a reduction in home equity as disadvantages. Knowing the specifics of a HELOC’s repayment is important when managing the financial responsibilities that come with the loan. Reviewing other loan options can also help in coming up with the best solution depending on the individual’s needs and circumstances.

Research has been conducted to determine the impact of a HELOC on 60-year-old individuals who are approaching retirement and planning to retire. According to a 2018 study by the National Bureau of Economic Research, retirees who had access to a HELOC used it to cover unexpected expenses or to enhance their financial flexibility during retirement and had better financial security and satisfaction than those without a HELOC. This indicates that a HELOC can be used as an emergency fund and financial tool to help retirees manage unexpected expenses or boost their retirement income. (Source: National Bureau of Economic Research, 2018)

A HELOC can be compared to a personal financial toolbox that people, including retired employees of NiSource companies, can turn to during their retirement. Like a well-stocked toolbox, which is equipped with the right tools for different home improvements, a HELOC provides financial tools that allow people to withdraw money from their home when they need it. It serves as a flexible credit line that can be used for renovations, for unexpected expenses, or to enhance retirement income. However, just as one should handle tools with care and caution, there are some risks and potential problems that should be taken into consideration when using a HELOC. These may include fluctuating interest rates and the fact that the collateral is the homeowner’s home. With this knowledge, people can use HELOC to their advantage to improve their retirement planning and make better decisions concerning their future.

Sources:

1. National Council on Aging (NCOA). 'What Is a Home Equity Line of Credit (HELOC)? A Guide for Older Adults.' National Council on Aging , 9 Jan. 2024, www.ncoa.org/article/what-is-a-home-equity-line-of-credit-heloc .

2. “How to Use a HELOC Strategically in Retirement.” NerdWallet , 5 Oct. 2022, www.nerdwallet.com/article/mortgages/heloc-strategies-retirement .

3. Fidelity Bank. 'A Retiree's Guide to Leveraging Home Equity in NEPA / Lehigh Valley.' Fidelity Bank , 2024, www.fidelitybankpa.com/retirees-guide-helock-lehigh-valley .

4. 'Can You Get a HELOC in Retirement?' Point Blog , 6 Dec. 2024, www.point.com/blog/heloc-retirement-eligibility .

5. CBS News. 'Is a Home Equity Loan or HELOC Safer for Seniors in 2025?' CBS News , 2025, www.cbsnews.com/articles/home-equity-loan-heloc-seniors-2025 .

As an employee of National Grid, what are the key eligibility criteria for participating in the Pension Plan specifically for Niagara Mohawk Power Corporation employees? How might these criteria impact your personal retirement planning and the benefits you expect to receive upon retirement from National Grid?

Eligibility Criteria for Niagara Mohawk Pension Plan: Employees of Niagara Mohawk Power Corporation who are represented by Local Union 97 of the IBEW and work at least 20 hours per week or accumulate 1,000 hours in a Pension Plan year are eligible. Participation begins automatically on the first day of employment. These criteria directly impact retirement planning by determining when employees begin accruing pension benefits and how much they will receive at retirement(National_Grid_2023_Niag…).

Within the framework of the National Grid Pension Plan, how does the cash balance formula work in calculating retirement benefits, and what implications does this have for employees of Niagara Mohawk Power Corporation when considering their long-term financial outlook?

Cash Balance Formula: The National Grid Pension Plan for Niagara Mohawk employees uses a cash balance formula that provides monthly pay-based credits (starting at 4% and increasing with years of service) and interest credits. These accumulate in a hypothetical account, growing until retirement, allowing employees to track their retirement benefits much like a savings account. This formula impacts financial outlook by providing predictable growth tied to service and pay(National_Grid_2023_Niag…).

For employees at National Grid, what are the specific rights and options available during the pension benefit application process? How do these rights protect the interests of individual employees and ensure they receive fair treatment under the Niagara Mohawk Pension Plan?

Pension Benefit Application Process: National Grid employees must apply for their pension benefits by submitting the required forms at least 90 days before retirement. Spousal consent is required if opting for any form of payment other than the default. This ensures employees understand and select the best payment option for their circumstances, protecting their interests under the Niagara Mohawk Pension Plan(National_Grid_2023_Niag…).

Given the different types of credits that contribute to the pension benefit for employees of National Grid, how are Pay-based Credits and interest credits calculated? What strategies might Niagara Mohawk Power Corporation employees employ to maximize these credits before retirement?

Pay-based and Interest Credits Calculation: Pay-based credits are determined by years of service, starting at 4% of pay and increasing to 8% after 20 years. Interest credits are based on an annual interest rate tied to the Treasury securities and corporate bond rates. Employees can maximize these credits by continuing to work and contributing to their pension balance(National_Grid_2023_Niag…).

How do pension benefits work for Transition Group Employees specifically within National Grid's framework, and what unique provisions apply to them under the Pension Plan as compared to regular employees of Niagara Mohawk Power Corporation?

Pension Benefits for Transition Group Employees: Transition Group Employees under the National Grid Pension Plan have benefits calculated using both the former final average pay formula and the cash balance formula, with the greater benefit being paid out. This differs from regular employees who only receive benefits calculated under the cash balance formula(National_Grid_2023_Niag…)(National_Grid_2023_Niag…).

What are the repercussions for National Grid employees in terms of benefit loss or limitation if they have not met the Vesting requirements under the Niagara Mohawk Pension Plan? How can understanding these repercussions influence an employee's decision-making regarding their career and retirement?

Impact of Vesting Requirements: Employees must complete three years of service to become vested in the Niagara Mohawk Pension Plan. If they leave before vesting, they lose all accrued pension benefits. Understanding vesting requirements is crucial for career and retirement planning, as it ensures employees retain their pension benefits if they meet the criteria(National_Grid_2023_Niag…).

As a current employee at National Grid, what does the termination of the Pension Plan imply for accrued benefits under the Niagara Mohawk Pension Plan? Specifically, how do federal protections through ERISA and the Pension Benefit Guaranty Corporation come into play for employees seeking assurance regarding their retirement funds?

Termination of Pension Plan and Federal Protections: If the Niagara Mohawk Pension Plan is terminated, accrued benefits are protected by ERISA and insured by the Pension Benefit Guaranty Corporation (PBGC). Employees can feel assured that their benefits will be secured up to the PBGC's limits in case of plan termination(National_Grid_2023_Niag…).

How does the National Grid Pension Plan accommodate the unique situations of employees during times of disability or military service, and what steps should Niagara Mohawk Power Corporation employees take to ensure their benefits continue during these periods?

Disability and Military Service: Niagara Mohawk employees receive service credits during periods of disability or military leave, ensuring continuous pension accrual. Employees should ensure their disability or military status is properly documented with the company to avoid interruptions in their pension benefits(National_Grid_2023_Niag…).

When considering the various forms of pension payments available to retirees from National Grid, what are the potential advantages and disadvantages of choosing an annuity versus a lump-sum payment for employees from Niagara Mohawk Power Corporation?

Annuity vs. Lump-Sum Payment: Retirees at National Grid have the option to choose between an annuity, providing a steady income for life, or a lump-sum payment. The annuity provides financial stability, while a lump sum offers flexibility. The choice depends on individual financial needs and retirement goals(National_Grid_2023_Niag…).

For those looking to gain further clarity on the nuances of the Niagara Mohawk Pension Plan, what are the most effective ways for employees to contact National Grid for assistance? How can engaging with the Pension Service Center enhance an employee's understanding of their benefits and rights?

Contacting National Grid for Pension Assistance: Employees seeking more information about their Niagara Mohawk Pension Plan can contact the National Grid Pension Service Center or use the online pension modeler. Engaging with the Pension Service Center provides personalized guidance, helping employees understand their benefits and make informed decisions(National_Grid_2023_Niag…).