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Credit-union HELOC offer, no closing costs
Old 11-05-2004, 09:30 AM   #1
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Credit-union HELOC offer, no closing costs

Last month our credit union (Navy Federal) gleefully processed our mortgage refinance. Today they've followed up with an offer of a zero-cost HELOC on the remaining equity. Apparently smelling blood in the water, they're using our refinance application to express-mail a new contract and they'll even send the notary to our house. Amazing.

Of course this lunch isn't totally free. Once we get the checkbook in our hot little hands, the HELOC draw period is good for up to 10 years. After 10 years the draw stops and any remaining balance is paid off at an interest rate to be negotiated at that time. For the first six months after closing, interest rate on any balance is 1.9%. (This teaser rate expires six months after closing whether we've written a check or not.) After six months the balance's rate rises to [prime + 0%] for the life of the draw. Today's prime is 4.75%.

As TH has pointed out many times, this type of zero-cost HELOC is a great emergency fund that frees up money-market cash for longer deposit terms. It also makes it easy to jump on good deals for home-improvement materials from the classifieds. But we don't have any specific use for the money and it'd just be smoldering in our pockets.

Arbitrage is another idea. While I wouldn't put up $57K on margin to short Google's stock, I'd certainly be happy to stash it six months for >1.9% and then indefinitely for anything over prime (which unfortunately is a variable rate). Since we'd be able to deduct the HELOC interest, our bracket's after-tax rate to beat is 1.62% (for six months) and then 85% of the variable rate (or 4.05% today). The only "problem" is finding anything that high at Bankrate.com or NFCU. Bankrate's highest six-month CD would net about $80 profit (assuming it was actually available). INGdirect's Orange Savings account is 2.2%, which would net about $160 in six months (but who knows what fees they'd charge for a $57K hit & run). NFCU offers a competitive interest rate on a four-year CD but the arb profits only come out to $90/year-- and that's only if interest rates don't rise.

So, while this remains a great emergency fund, does anyone else have any creative ideas?
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Re: Credit-union HELOC offer, no closing costs
Old 11-05-2004, 09:39 AM   #2
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Re: Credit-union HELOC offer, no closing costs

Honestly, I don't think there is enough profit to be made onthis kind of deal to compensate for the risk involved.
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Re: Credit-union HELOC offer, no closing costs
Old 11-05-2004, 12:52 PM   #3
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Re: Credit-union HELOC offer, no closing costs

I got the same deal from my credit union.

You know, I never think about having that burning a hole in my pocket.

I used it once...when I bought my new house before selling the old one and I was a little short of cash, and didnt want to sell any funds to do it. Used 100k of it for about 2 months, I think the interest was about $350, tax deductible.

But I like having it, as "you never know". If the dow dropped 5000 points in a couple of days, I might tap into it and buy something. If one of my cars imploded and I wasnt going to be able to round up the cash for 3-4 weeks, I'd use it for that.

I guess its better to have it and not need it, than need it and not have it.
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It's really not burning a hole for us, either...
Old 11-05-2004, 11:28 PM   #4
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It's really not burning a hole for us, either...

... but we're just thrilled to see a real house-call notary.

A couple months ago we reached 25 years of membership with them and received two coupons for a 0.25% interest-rate boost on our next CD. We did a little fund-raising with family, friends & neighbors and stomped all over that one. I can't wait for the next "special" deal.

And since we're clearly on someone's "Sucker call!" list, I'm eagerly anticipating the next query. A special meal to discuss investment opportunities? An invitation-only timeshare presentation? The possibilities are mind-boggling!
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Re: Credit-union HELOC offer, no closing costs
Old 11-06-2004, 07:15 AM   #5
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Re: Credit-union HELOC offer, no closing costs

If you just used a regular savings account at ING, there would be no fees at all. If you bought a CD, there would be some interest forfeited probably -- I don't think they do 1 or 2 month CD's there.

This idea is all over www.fatwallet.com, but most people there are getting large amounts of credit on some zero percent for life credit card deals from Discover and Chase and then sticking the money in an ING account or what have you.

Catches? You have to make at least one or two purchases per month, and you have to make the minimum payments (of ~2, 2.5% of the balance). There's others, but it's doable if you're willing to take the risk.

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