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05-07-2005, 01:20 PM
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#1 |
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Thinks s/he gets paid by the post
 Join Date: Jan 2004
Posts: 1,070
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the HELOC
Take out a HELOC at 5.75% with a 5 year draw period and 10 year repayment period. Wait 4 years until rates rise. Draw down and put into a T-bond earning >5.75%.
Foolproof arbitrage. What am I missing? |
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05-07-2005, 02:04 PM
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#2 |
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Thinks s/he gets paid by the post
Join Date: Feb 2004
Posts: 1,537
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Re: the HELOC
Prime is 6% this week. A year ago it was 4%. My HELOC is prime - 1/4% Treasuries are offering around 4%. IT DONT WORK. Dont think it ever will. BUM
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In a panamax down by the river. |
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05-07-2005, 02:19 PM
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#3 |
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Thinks s/he gets paid by the post
Join Date: Jan 2004
Posts: 1,070
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Re: the HELOC
The HELOC I'm looking at is fixed for the entire life of the loan (15 years). I still don't believe it myself. It's like the savings bond/credit card game.
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05-07-2005, 02:40 PM
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#4 |
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Give me a museum and I'll fill it. (Picasso)
Give me a forum ... 
Join Date: Dec 2003
Location: Hot cross bun
Posts: 21,357
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Re: the HELOC
Right now you cant make 5.75% on anything remotely safe (only thing I can think of is high yield), you would probably pay taxes on the income from the investment, and as far as I know using a heloc to fund investments invalidates using the interest as a tax deduction.
I'm going to guess you're going to lose 1-2% on the arbitrage.
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Mr. Poopyhead |
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05-07-2005, 02:53 PM
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#5 |
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Thinks s/he gets paid by the post
Join Date: Jan 2004
Posts: 1,070
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Re: the HELOC
There aren't any payments until something is drawn from the LOC so I could sit on it and only borrow if/when safe yields go above the interest rate.
Taxes...right, I'd have to make 15% above the interest rate for it to work. That's about 6.6% and seems unlikely to happen in 5 years.  |
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05-07-2005, 05:19 PM
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#6 |
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Thinks s/he gets paid by the post
Join Date: Dec 2002
Posts: 3,877
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Re: the HELOC
The -0- % APR CC offers were a no-brainer. But, when you get
above -0- it requires some thinking. So far, I have taken all the -0- % money I could get. Beyond that, too much like work to suit me. JG |
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05-08-2005, 05:08 AM
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#7 |
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Thinks s/he gets paid by the post
Join Date: Dec 2002
Posts: 3,877
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Re: the HELOC
I can see having a HELOC in place (even if you never use it)
is beneficial. Both of our homes are held in corporate name, so a traditional HELOC won't work most places. Not a problem for now as I don't need the money presently. JG |
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05-08-2005, 08:26 AM
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#8 |
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Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Dec 2003
Location: Hot cross bun
Posts: 21,357
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Re: the HELOC
I have one for emergency money. Used it briefly 2 years ago when I bought my new house before selling my old one, sort of as a self made bridge loan. Only had about 50k out of it for a couple of months, few hundred in interest, tax deductible.
Good to have though. You neverrrr know.
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Mr. Poopyhead |
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05-08-2005, 08:33 AM
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#9 | |
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Thinks s/he gets paid by the post
Join Date: Dec 2002
Posts: 3,877
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Re: the HELOC
Quote:
JG |
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