the HELOC

eridanus · 05-07-2005, 02:20 PM

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 · 05-07-2005, 03:04 PM

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 · 05-07-2005, 03:19 PM

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 · 05-07-2005, 03:40 PM

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 · 05-07-2005, 03:53 PM

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.

MRGALT2U · 05-07-2005, 06:19 PM

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

MRGALT2U · 05-08-2005, 06:08 AM

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 · 05-08-2005, 09:26 AM

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.

MRGALT2U · 05-08-2005, 09:33 AM

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

05-07-2005, 02:20 PM	#1
eridanus Thinks s/he gets paid by the post Join Date: Jan 2004 Posts: 1,258	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?

05-07-2005, 03:04 PM	#2
BUM Thinks s/he gets paid by the post Join Date: Feb 2004 Posts: 1,549	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 __________________ In a panamax down by the river.

05-07-2005, 03:19 PM	#3
eridanus Thinks s/he gets paid by the post Join Date: Jan 2004 Posts: 1,258	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.

05-07-2005, 03:40 PM	#4
cute fuzzy bunny Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Dec 2003 Location: Losing my whump Posts: 22,527	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. __________________ Many an optimist has become rich by buying out a pessimist

05-07-2005, 03:53 PM	#5
eridanus Thinks s/he gets paid by the post Join Date: Jan 2004 Posts: 1,258	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.

05-07-2005, 06:19 PM	#6
MRGALT2U Thinks s/he gets paid by the post Join Date: Dec 2002 Posts: 3,877	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

05-08-2005, 06:08 AM	#7
MRGALT2U Thinks s/he gets paid by the post Join Date: Dec 2002 Posts: 3,877	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

05-08-2005, 09:26 AM	#8
cute fuzzy bunny Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Dec 2003 Location: Losing my whump Posts: 22,527	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. __________________ Many an optimist has become rich by buying out a pessimist

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