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the HELOC
Old 05-07-2005, 02:20 PM   #1
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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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Re: the HELOC
Old 05-07-2005, 03:04 PM   #2
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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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Re: the HELOC
Old 05-07-2005, 03:19 PM   #3
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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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Re: the HELOC
Old 05-07-2005, 03:40 PM   #4
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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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Re: the HELOC
Old 05-07-2005, 03:53 PM   #5
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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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Re: the HELOC
Old 05-07-2005, 06:19 PM   #6
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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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Re: the HELOC
Old 05-08-2005, 06:08 AM   #7
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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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Re: the HELOC
Old 05-08-2005, 09:26 AM   #8
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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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Re: the HELOC
Old 05-08-2005, 09:33 AM   #9
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Re: the HELOC

Quote:
Originally Posted by th
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.
I agree. I view my 150K of CC availability as "emergency money".

JG
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