Borrowing money

How do you get your dream vacation home? A good plan

We want to help you make more informed decisions. Certain links on this page – clearly marked – may direct you to a partner website and allow us to earn a referral commission. For more information, see How we make money.

(This article originally appeared in NextMove, our weekly housing market newsletter. Register using the box below.)

This is Jon Reed with NextAdvisor. We talk a lot about financial products: Mortgages, home equity loanshigh yield savings accounts, certificates of deposit. These are all ways to borrow money, save money, or turn money into more money.

But it’s not the money that’s important. That’s what it can do for you.

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

Sally Shea wanted to buy a vacation home – an RV next to her daughter’s on Lake Winnipesaukee in New Hampshire. She could withdraw the $150,000 she needed to buy him the RV IRA everything at once. But it would significantly boost her earnings for the year, increasing what she paid in taxes and future health insurance premiums.

So her financial planner offered her another option: use a home equity line of credit, or HELOC, secured against his house. It could spread the cost over two years, thereby reducing the tax burden.

It’s a simple maneuver – borrowing money temporarily with a plan to pay it back – to achieve your life goals without jeopardizing other important things. People make smart choices like this every day. And it’s not just a question of 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 goal was concrete: a vacation home where she could spend the summers baking waffles for her grandchildren.

She spoke to an expert. Shea had an established relationship with a financial planner who was able to spot potential problems — the threat that withdrawing all the money ahead of time would cost her more in the long run — and find a solution. He ensured that Shea could achieve her dream without compromising 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 take more money out of her IRA a few months later and pay it all back quickly. It helped that HELOC interest rates were particularly low at the time, which helped keep her costs low when she carried a balance. (They have grown significantly since then.)

Borrowing money can be a headache, and if you’re not careful, it can turn into a nightmare. This is especially true if you’re mining your home’s 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.