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Penfed HELOC - can anyone beat their rates??
Old 04-19-2010, 10:51 PM   #1
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Penfed HELOC - can anyone beat their rates??

I'm in the market for a HELOC. I plan to draw $20,000 immediately from it (don't ask why ). Penfed is my default choice to look at rates. So far, I haven't found any well known lenders that can beat their rates.

Here's what they are offering:
Option A: 20 year HELOC up to 80% LTV with rates at 3.75% variable based on Prime plus 0% (and a 3.75% floor).

Option B: 15 year HELOC up to 75% LTV with rates at 4.25% fixed for 5 years, then adjustable at the 5 and 10 year anniversary based on 5 year CMT treasuries plus "up to" 2% margin.

No closing costs on either one. Leaning towards the 5 year adjustable rate for an extra 0.5% since prime has been running 4 to 8% for the last decade (except the last year or so). LTV not an issue as 75% will cover what we need.

The only thing I have seen that beats penfed is Hanscom Fed Credit Union ( https://www.hfcu.org/site/products_rates.html#loan ). Has anyone ever used them? They have a 15 year at 2.75% right now, prime -0.5%. No closing costs.

Anyone see anything better than these?
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Old 04-20-2010, 07:00 AM   #2
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I would ask pen fed about the fine print. Last I spoke with them, they had a HELOC product that was different than most other lenders. Most have a 10 year draw period during which payments are interest only. After that it is a 15 year amortization period if you have anything out at the end of the draw period. In contrast, pen fed is a bullet structure with all outstandings due at the end of the draw period. They also require payments of 2% of the outstanding balance every month. So pen fed's product results in higher cash flow strain and bullet maturity risk versus the more typical HELOC. This may not matter for a relatively small 20k loan, but be aware the terms are not apples to apples.
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Old 04-20-2010, 09:30 AM   #3
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I would ask pen fed about the fine print. Last I spoke with them, they had a HELOC product that was different than most other lenders. Most have a 10 year draw period during which payments are interest only. After that it is a 15 year amortization period if you have anything out at the end of the draw period. In contrast, pen fed is a bullet structure with all outstandings due at the end of the draw period. They also require payments of 2% of the outstanding balance every month. So pen fed's product results in higher cash flow strain and bullet maturity risk versus the more typical HELOC. This may not matter for a relatively small 20k loan, but be aware the terms are not apples to apples.
Thanks for the heads up. I am calling them today to do the DD.

As you wrote it is sort of how I understand penfed's product. You can draw during the draw period - 15 to 20 years depending on product. Any principal not repaid is a balloon payment at the end of the term (15-20 yrs).

I will draw roughly $23k initially, then probably pay it back over the next few years. I imagine I will "refinance" the HELOC after 5-8 years or so anyway, once the 1st mortgage is paid in full (or almost in full) to give me a big HELOC capacity closer to 80% LTV just on the HELOC for FIRE.

I may post the reason for the necessity of this HELOC later (looooooooong story). I'm still a little



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Old 04-20-2010, 09:38 AM   #4
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Quote:
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I'm in the market for a HELOC. I plan to draw $20,000 immediately from it (don't ask why ).
Quote:
Originally Posted by FUEGO View Post
I may post the reason for the necessity of this HELOC later (looooooooong story). I'm still a little

Enough of the 'Wink wink, nudge nudge". What's up?
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Old 04-20-2010, 09:55 AM   #5
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Enough of the 'Wink wink, nudge nudge". What's up?
My guess is it is new car time.
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Old 04-20-2010, 10:37 AM   #6
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My guess is it is new car time.
Ha! I wish! That would be a perfectly reasonable "excuse" for getting the $23k.
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Old 04-20-2010, 10:39 AM   #7
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Enough of the 'Wink wink, nudge nudge". What's up?
I'll probably start a thread about it later. Let's just say "helping family out due to stupid crazy decisions" for now. I'm too busy helping family out on other issues right now to discuss in depth.
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Old 04-20-2010, 10:50 AM   #8
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Earlier this spring at the Home Show I checked out the possibility of refinancing my existing 6.5% 30 year mortgage (2006 refi of a previous loan with cash out to replace dead car). One of the people I talked to suggested rather than refinance, take out an interest only HELOC, pay off the mortgage with it and have much reduced payments. This is well within the realm of possibility—the existing loan is between 1/4 and 1/3 of the value of the house (even considering probable reduction in market price since the refi).

Obvious plus: reduces monthly mortgage payment significantly, which enables me to save more toward ER and/or better weather possible wage freeze or reduction, or increased furlough days due to budget downturn.

Obvious minus: if I only pay the interest, my equity in the house will be at a standstill, or worse if prices continue to fall. My plan has always been to sell this house at retirement (±3 years from now, I hope), move to a less expensive area, and put the difference in house cost into my nest egg.

Has anyone here done this? Are there additional, less obvious pluses and minuse?
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Old 04-20-2010, 11:38 AM   #9
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I'll probably start a thread about it later. Let's just say "helping family out due to stupid crazy decisions" for now. I'm too busy helping family out on other issues right now to discuss in depth.
Bail is probably better than jail, but otherwise...
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Old 04-20-2010, 12:34 PM   #10
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Bail is probably better than jail, but otherwise...
It could be worse than jail. I don't really want to know the full extent of it. Too disgusted with the situation to discuss it in detail right now. It will make for an interesting thread I hope when I can reflect back on it properly.
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Old 04-20-2010, 01:55 PM   #11
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I was afraid you learned the IRS was refiguring your calculations for you: Reflections on Taxes

I'm sorry you're having to deal with other issues.
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Old 04-20-2010, 01:57 PM   #12
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Fuego,

Have you considered opening both a HELOC and a HE Loan? Since you know that you need 20K immediately, you can use PenFed's 3.99 HE loan to get to the 20K, and then open the HELOC for future incidentals?

I'm strongly considering the 5/5 HELOC since 0.5% seems cheap for a guaranteed 4.25% rate for 5 years.
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Old 04-20-2010, 02:13 PM   #13
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I was afraid you learned the IRS was refiguring your calculations for you: Reflections on Taxes

haha! No, my taxes are rock solid and I'm not worried even if I do get audited. Everything I have done is by the book, cut and dry, no grey areas or "aggressive" tax stances. While unnerving, I have dealt with audit lites before where they claimed we owed more than the $23k I'm referring to here.
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Old 04-20-2010, 02:30 PM   #14
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Have you considered opening both a HELOC and a HE Loan? Since you know that you need 20K immediately, you can use PenFed's 3.99 HE loan to get to the 20K, and then open the HELOC for future incidentals?

I'm strongly considering the 5/5 HELOC since 0.5% seems cheap for a guaranteed 4.25% rate for 5 years.
I had not considered a HE loan and HELOC together (ie 2nd and 3rd mortgages). I'll probably just go with the 5/5 HELOC. The idea of having that amount of equity available at 4.25% fixed for 5 years at least is appealing.

I talked to penfed, and the 5/5 is up to 75% LTV for me, 4.25% for 5 years, then it adjusts in year 5 and 10. 15 year total term, with balloon payment at the end for any principal amounts not repaid prior to that.

No closing costs up front, and you only have to pay them in the first 36 months if you refinance/close the HELOC.
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Old 04-20-2010, 02:56 PM   #15
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Is the 5/5 IO or requires monthly principal payments?
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Old 04-20-2010, 03:21 PM   #16
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No closing costs up front, and you only have to pay them in the first 36 months if you refinance/close the HELOC.
This might not apply to you, but I checked the disclosures for the 5/5 HELOC and there one thing that I don't remember in other HELOCs: " An appraisal is required for line amounts greater than $50,000. Should an appraisal be required for any reason, one will be ordered by Pentagon Federal at the member’s expense."

It looks like PenFed's standard HELOC doesn't charge for appraisals. Since I refi'd with them recently, I'm going to see if they could use that appraisal for this.

EDIT: They will use an older appraisal as long as it is less than 4 months old.
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Old 04-20-2010, 03:44 PM   #17
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Is the 5/5 IO or requires monthly principal payments?
Monthly principal, IIRC 2% of principal each month. But you can take additional draws to "feed" the 2% withdrawals. Not sure if randomizing them would be required, since they may not like me withdrawing 2% each month then paying back 2% the next day.
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Old 04-20-2010, 06:41 PM   #18
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If you are eligible, look at a HELOC with USAA- they had the best rates I could find, I borrowed about 300K when I bought my new house (until the old house sold) the variable variable rate was hovering in the low 2's- will probably set one up on the new house soon; just in case any more "investment opportunities" come along.

Good luck on the family situation!
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Old 04-21-2010, 12:59 PM   #19
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The 5/5 HELOC at 4.25% is applied for. Instant approval online. Very easy and quick. Not nearly as many questions as a first mortgage through penfed I recently applied for.

Family situation is still volatile. It's not my immediate family, but DW's sibling. Intervention scheduled for Saturday evening.
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Old 04-21-2010, 02:12 PM   #20
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Here's the thread where I spill the beans.

My reason for urgently needing a HELOC
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