Useful example below on how to come out ahead investing with a HELOC. http://www.bargaineering.com/articles/dont-invest-borrowed-money... K.Miller said: I realize this article is quite old, but what I will tell you is that the math you are using is incorrect. First of all to add to Stingy’s comment, in Canada, if you borrow money to invest it is only tax deductible if you put in in to a NON-registered investment….if you borrow money and put it in to RRSP’s you can not deduct the interest.
Now with that being said, let’s look at some actual numbers…..Jim, you suggest that if a HELOC has a rate of about 8% (in Canada we can get HELOCs at about 3.25%) you would need to have a rate of return of greater than 6%, let me show you why this is certainly NOT the case.
I am going to use even worse numbers than Jim did and let’s see how this works out. Let’s assume a HELOC rate of 10% and a rate of return of just 6%….how many of you would borrow money at 10% and invest it at 6%??? ….I would! Let’s take out a nice even number of $100,000.00 and assume we are going to pay 10% over 10 years….simple math says we will pay $10k per year in interest for a total after 10 years of $100,000.00. Now, in the US if you borrowed that money out of your home and in Canada if you invest it in a non registered investment, that money is tax deductible so if we assume a conservative tax bracket of 30% our actual cost of borrowing will only be $70000.00. Now we are going to take that same money we borrowed and we are going to put it in to an investment that is going to give us 6% for the same 10 years….if you plug that in to an investment calculator you will see it grows over 10 years to about $182,000.00. So now we have to pay back our original loan to the bank $182,000.00 – $100,000.00 = $82,000.00, factor in our cost of borrowing $82,000.00 – $72,000.00 = $12,000.00!!!! I have just made $12,000.00 borrowing at 10% and investing at 6%. The difference is simple vs. compounding interest….and if it works when the numbers are this backwards, think of how much better it would work when your HELOC rate is 3-4% and you can get 8-10% on your investments long term….
What I will say, is this is not a strategy for everyone!! I know when the markets went down in 2008 a lot of people would have lost sleep with a strategy like this and would have made an emotional decision and pulled out of the markets… I am personally using a strategy just like this and my investments were worth less than the debt I had (I put it in in 2007 so it was no shocker to me), however, after 2009 my investments are just about at par again….long term, the markets have always worked so I have no worries!
In this example you are borrowing at 7% (10% -30% taxes) and earning 4.2% (6% -30% taxes) for a loss of 2.8% (4.2%-7%).
The reason it appears to work is because he is making the interest payment at the end of the investment period when in actuality they would be due annually in this example.
Silex said: Useful example below on how to come out ahead investing with a HELOC. http://www.bargaineering.com/articles/dont-invest-borrowed-money... K.Miller said: I realize this article is quite old, but what I will tell you is that the math you are using is incorrect. First of all to add to Stingy’s comment, in Canada, if you borrow money to invest it is only tax deductible if you put in in to a NON-registered investment….if you borrow money and put it in to RRSP’s you can not deduct the interest.
Now with that being said, let’s look at some actual numbers…..Jim, you suggest that if a HELOC has a rate of about 8% (in Canada we can get HELOCs at about 3.25%) you would need to have a rate of return of greater than 6%, let me show you why this is certainly NOT the case.
I am going to use even worse numbers than Jim did and let’s see how this works out. Let’s assume a HELOC rate of 10% and a rate of return of just 6%….how many of you would borrow money at 10% and invest it at 6%??? ….I would! Let’s take out a nice even number of $100,000.00 and assume we are going to pay 10% over 10 years….simple math says we will pay $10k per year in interest for a total after 10 years of $100,000.00. Now, in the US if you borrowed that money out of your home and in Canada if you invest it in a non registered investment, that money is tax deductible so if we assume a conservative tax bracket of 30% our actual cost of borrowing will only be $70000.00. Now we are going to take that same money we borrowed and we are going to put it in to an investment that is going to give us 6% for the same 10 years….if you plug that in to an investment calculator you will see it grows over 10 years to about $182,000.00. So now we have to pay back our original loan to the bank $182,000.00 – $100,000.00 = $82,000.00, factor in our cost of borrowing $82,000.00 – $72,000.00 = $12,000.00!!!! I have just made $12,000.00 borrowing at 10% and investing at 6%. The difference is simple vs. compounding interest….and if it works when the numbers are this backwards, think of how much better it would work when your HELOC rate is 3-4% and you can get 8-10% on your investments long term….
What I will say, is this is not a strategy for everyone!! I know when the markets went down in 2008 a lot of people would have lost sleep with a strategy like this and would have made an emotional decision and pulled out of the markets… I am personally using a strategy just like this and my investments were worth less than the debt I had (I put it in in 2007 so it was no shocker to me), however, after 2009 my investments are just about at par again….long term, the markets have always worked so I have no worries!
Recently applied for Penfed 5/5 HELOC (ELOC). Did it online and was approved within 48 hours but still waiting for them to contact me for providing docs (I guess they are waiting for appraisal and insurance). I have a sense this is going to be the slow process people are talking about.
Here is the rate I got.
5.125 for 5 years fixed. No fees unless I close the the line before 36 months.
Just applied to hanscom.. From join to the initial call, it has taken only 1 hr. They are going to have a branch person call me in 48 hours with decision and closing discussions..
Is Pen Fed unique with the 5/5 fixed HELOC? Or any fixed HELOC (36 months or greater, not just a teaser)?
I am thinking of using it to prepay my existing mortgage, then pay most of it down when I get my annual (low to mid 5 figures) bonus in the spring. My expenses that I plan to spend the bonus on (a new car for my wife & kids) won't hit till the fall, thus allowing me rate arbitrage my bonus to my mortgage rate instead of just getting 1% for six months in a savings account. Alternatively, if the car financing is favorable (like 0%), then I just leave the line largely open. I make over $1K per month in extra payments, so I'd just allocate some of that extra payment money to the HELOC for debt service.
If I could squeeze the rate a little lower it would really drive it home. But I don't want to take on interest rate risk (as minor as it is in the near term given the Fed's comments) of a fully floating HELOC.
I am aware the bank could freeze the line, but its not a big concern to me.
Has anyone successfully joined Hanscom CU via online application? I submitted my membership application online last night and got a rejection this morning. A phone call to Membership Coordinator indicates that no online application is accepted at this time. To join you must visit the branch. Weird!
Here is the email content I got... "...Thank you for your interest in joining Hanscom Federal Credit Union.
Unfortunately the application did not meet the criteria established through our online third-party providers and we will not be able to establish your membership at this time."
I started the process online on Oct28 (see 2 posts up) and the 2.75% heloc closing is now scheduled on 11/16. It could have been sooner but our evenings were locked up. Very fast painless and friendly operation so far.
They are accepting online apps but looks like your identity validation is failing. They do have more identity validation questions then anyone else
I'm in CA and for me HFCU seems to be the best (only sub-prime?) deal out there (prime minus .5 for 75% LTV) but I am worried about their appraisal process. I tried the "e-valuator" on their website and it estimated my home's value at about 2/3 of what it was recently appraised at. Can anyone give me their experience with HFCU and their appraisal process? Some earlier posts make it sound like they will go ahead an do a drive by and/or full appraisal if you ask them to, but its not clear who paid for it. Also, I am refinancing my first mortgage as well, so I would hope that I could use that appraisal for both loans... anyone done a 1st and 2nd refi with HFCU providing the 2nd?
HFCU was a no cost loan for me, so didn't have to pay the appraisal fee. At closing they just credited the entire due from borrower.
Their loan calculator is way out of wack. The computer appraisal came in 300k off the mark. I complained, and they said no problem we'll schedule an appraisal drive by. The drive by came in 100k off and I complained again. They said no problem we'll schedule an in-home appraisal. The in-home appraisal came in at the right valuation. I would imagine they would use the same appraisal for both loans.
What kind of rates is Hanscome doing for 1st loan? There are some killer deals out there for 30yrs.
xad said: Any bank/credit union with home equity loan rate under 4% for 85% LTV .. good credit history Both NFCU and US BANK say they do "up to 90% LTV" on owner-occupied HELOCs.
Watch it with US BANK however, they Bait & Switched me. They quoted me a low rate on a <80% LTV, and then later said I was approved but for a higher rate, even though I have excellent credit.
xad said: Adirondack Trust has 1.99% for 12 months HELOC for new customers, 80% LTV and then 3.25% - after 12 Months, Prime Rate - Variable Anybody know which credit reporting agency they pull: Equifax, Experian, TransUnion ?
5/5 HELOC from Penfed was extremely long (will signing closing paper next week). Here is what I learned.
1. Keep in contact with them all time and send them all docs the minute you get approved. 2. They use Equifax for credit report. 3. Be prepared to pay for appraisal. They use 3rd party and in my case, the appraiser was a PITA.
I plan to do another HELOC application next week once this one is close. The current rate is 5% for 5/5
INTRODUCTORY FIXED RATE OF 2.24% APR* FIRST 12 BILLING CYCLES, VARIABLE RATES OF 3.99% APR* THEREAFTER
No application fee No closing costs Interest Only payment option No appraisal fees Fixed rate lock option
* To get the FlexLock Home Equity Line of Credit Fixed Introductory APR and variable "go to" APR shown, you must apply by December 31, 2011, must have or open a Sovereign checking and use automatic payment (ePay) from the qualifying account. To get the variable "go to" APR shown, you must obtain a credit line of $100,000 - $750,000.
All APRs assume that your total mortgage loans, including your FlexLock line, do not exceed 80% of the value of your 1 - 4 family owner-occupied residential property in MA, RI, CT, NH, NJ, PA, DE, ME, VT or DC. There is a $450 termination fee if you close the line within 36 months. An annual fee, if any, will be charged during the Draw Period, and will be $0, $25 or $50, depending on the Sovereign deposit account you maintain, and may change if you change the deposit account. The annual fee will equal $0 as long as you maintain a Sovereign Premier, Business Owner Premier or Premier Partnership Checking Account or Premier Money Market Savings Account. An annual fee of $25 will be charged as long as you maintain a Sovereign Preferred or Preferred Partnership Checking Account or Preferred Money Market Savings Account. An annual fee of $50 will be charged if you do not maintain one of the above deposit accounts. A $175 non-refundable fee will be charged if your property is held in trust. There is a $50 fixed rate lock fee for each lock-in request. Property insurance is, and flood insurance may be, required. FlexLock account use is subject to the terms of the Sovereign Home Equity Line of Credit Agreement, including terms that permit lines to be suspended, reduced or terminated in certain circumstances.
I am thinking of opening a HELOC with Hanscom CU. For those who have done this, how does the charge to your credit card appear? Is it a purchase or a cash advance? If a purchase, I could potentially earn up to 2%, thus making money on this.
HBax said: xad said: Any bank/credit union with home equity loan rate under 4% for 85% LTV .. good credit history Both NFCU and US BANK say they do "up to 90% LTV" on owner-occupied HELOCs.
Watch it with US BANK however, they Bait & Switched me. They quoted me a low rate on a <80% LTV, and then later said I was approved but for a higher rate, even though I have excellent credit. Had a great experience with DCCU (#2 on the list). They closed quick at 3.5% (prime 3.25% + 0.25%) for 90% LTV.
I saw that Apple Bank is doing P - 1%. link here https://www.applebank.com/loan-detail.aspx?id=84 Anyone know anything about Apple Bank? I was gonna go with HFCU till I saw this; now debating. We are taking out 150k or so, so they cover closing cost too. Any caveat?
capblast said: I saw that Apple Bank is doing P - 1%. link here https://www.applebank.com/loan-detail.aspx?id=84 Anyone know anything about Apple Bank? I was gonna go with HFCU till I saw this; now debating. We are taking out 150k or so, so they cover closing cost too. Any caveat?
if its the same Apple Bank that's in NYC, then they've been in business for decades. there's a branch in VA.
btw- There is a $35 annual fee that is waived for the first year.
Are there any companies out there that will do a HELOC for a rental property? I recently purchased an investment property in Baltimore, MD for $25,000 cash. It needs to be rehabbed and my plan was to get a HELOC to pay for the costs up front. The tax assessment for the home is $137,000. I'm having trouble finding a bank that will do a HELOC for an investment property in this area. Any help is appreciated. Thanks!
Silex said: HBax said: xad said: Any bank/credit union with home equity loan rate under 4% for 85% LTV .. good credit history Both NFCU and US BANK say they do "up to 90% LTV" on owner-occupied HELOCs.
Watch it with US BANK however, they Bait & Switched me. They quoted me a low rate on a <80% LTV, and then later said I was approved but for a higher rate, even though I have excellent credit. Had a great experience with DCCU (#2 on the list). They closed quick at 3.5% (prime 3.25% + 0.25%) for 90% LTV.
Let's try that again. Where were you located? I'm in CA looking to do the same - how does it work if you are not local to the CU?
zendor0001 said: Are there any companies out there that will do a HELOC for a rental property? I recently purchased an investment property in Baltimore, MD for $25,000 cash. It needs to be rehabbed and my plan was to get a HELOC to pay for the costs up front. The tax assessment for the home is $137,000. I'm having trouble finding a bank that will do a HELOC for an investment property in this area. Any help is appreciated. Thanks!
My HELOC with penfed is for my rental.
The problem you have is that you will have a tough time with the appraisal for your rehab home. Penfed used a 3rd party appraiser that I had to pay out of poecket and the appraisal was pretty detailed.
capblast said: I saw that Apple Bank is doing P - 1%. link here https://www.applebank.com/loan-detail.aspx?id=84 Anyone know anything about Apple Bank? I was gonna go with HFCU till I saw this; now debating. We are taking out 150k or so, so they cover closing cost too. Any caveat?
Check the fine print. # And if your line is $125,500 or greater, Apple Bank pays for the closing. If your Creditline is $125,500 or greater, you are required to pay the mortgage tax, the flood certification fee, the recording fee and the tax service fee if necessary. Your appraisal fee will be refunded at closing. Our attorney's fee and title report fees will be paid by Apple Bank. There is a $10,000 minimum draw requirement at the time of closing to activate your home equity line of credit. # If your Creditline is $125,000 or less, you are responsible for all fees. However, there is no minimum draw requirement at the time of closing to activate your home equity line of credit.
Mortgage tax in NY varies county to county but is > 1% in all cases I think, so that is a minimum $1,250 in fees
TD Bank has prime -0.5%. Minimum $200K line and 80% LTV (but no minimum draw). All closing costs are covered including NY mortgage tax. Borrower responsible only for $99 origination fee.
Reading through the thread, I noticed that no other bank seems to pay NY mortgage tax. Beginning to wonder if TD gave me false information on the phone...
jmorgans said: Reading through the thread, I noticed that no other bank seems to pay NY mortgage tax. Beginning to wonder if TD gave me false information on the phone...
Chase disclosure says they do not pay NYS/NYC mortgage tax, but their rep assured me that it is their standard disclosure used for fixed rate mortgages as well as HELOCs, while in fact, they do pay mortgage tax for HELOCs, so I am not sure which info is correct.
Sovereign rep told me that they do not pay NYS/NYC mortgage tax for HELOCs.
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