Congratulations! Youhave just replicated the essential business plan of every life insurance company in the known world.
It's like stoozing without the fine print, deadline tripwires, and credit-rating impacts. It's like playing blackjack without having to worry about pit bosses or card-counting.
I'm having a hard time distinguishing between Clif's investing plan and my habit of picking up pennies. Both are profitably virtuous and I guess there are different amounts of effort but otherwise there's not much of an incentive either way. Is it worth picking up $500K in debt for an extra $2500/year? Where does this cross the line between keeping a mortgage and emulating Long-Term Capital Management?
Why is PenFed being so nice to us instead of buying their own darn institutional shares of Vanguard's high-yield funds?
I guess my reluctance is some ill-defined fear of being caught holding the default hot potato.
EDIT: Ah, I had to do the math.
The equity loan isn't principal at a fixed interest rate with a balloon payment at the end of the term. According to their payment calculator, it's a regular mortgage that requires a repayment of principal every month as well as interest. So although one could "profit" from the interest-rate spread, the declining principal balance actually reduces the APY below a stated CD yield. Mortgage-interest tax deductions, AMT limits, and a host of other financial maneuvers make this a tough spreadsheet.
The HELOC adjusts its interest rate quarterly. So although one could lock in a long-term CD with PenFed's money, there's one heckuva risk on the HELOC payments in a rising interest-rate environment. I'm not gonna try to arb the Fed for $2500/year.
Does Vanguard's high-yield bond APY reflect a return of principal, or is that strictly interest & cap gains?