the HELOC

[eridanus]

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?

 

[BUM]

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

 

[eridanus]

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.

 

[cute fuzzy bunny]

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.

 

[eridanus]

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.

 

[Mr._johngalt]

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

 

[Mr._johngalt]

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

 

[cute fuzzy bunny]

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.

 

[Mr._johngalt]

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