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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: 2,049
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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
Location: Mid Hudson Valley
Posts: 1,781
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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
__________________
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: 2,049
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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: Losing my whump
Posts: 22,708
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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.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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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: 2,049
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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: 3,875
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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: 3,875
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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: Losing my whump
Posts: 22,708
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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.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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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: 3,875
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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.
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I agree. I view my 150K of CC availability as "emergency money".
JG
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