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Household Finances

Investing Heloc money?

16 years ago

We are due to close on our home end of Feb. We have $25,000 Heloc which we haven't used. We pay 3.04% interest on the Heloc. Could we take the 25,000 and invest it before the closing? Is that legal? Just wondering as we could make more interest investing it than we'd pay for one month.

Thanks,

Jane

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Comments (13)

sushipup1
16 years ago
If you pay off the HELOC, you'll be getting better than 3% on your money. Which is more than you will get anywhere else.
qdwag
16 years ago
sushipup, the way i read this is that Jane has NOT used the Heloc, and could borrow at 3.04%..I believe she wants to know if she could borrow and invest it short term..The answer is yes, i have done such...The trick is trying to earn more then the interest on the loan in a short period of time..Not easy
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Things really are crazy now for sure- I am the one who posted before out my HELOC getting frozen right in the middle of my major house renovation. I decided to contact another bank for a new HELOC, and at the same time went down the path with my existing bank providing a new appraisel. Before we did our renovation, we had two realtors come to our home to advise us on what houses were selling for in like size, condition to ours, and what they thought the renovation might add. They both replied with a number that was very close to each other, assuming that things do not change too much (we live in a very desirable part of town, that did not get the huge run up on prices and no big drops lately). Then, the appraisor gave us another number, about 20% lower than the realtors but high enough to continue our HELOC if our original bank actually wants to do so. Then, the new bank denied us a HELOC, stating that their compturized valuation came in too low- It was so low it was laughable- it was almost half lower than our actual appraisel. Now, I understand being conservative, but that is ridiculous. I almost wonder it they had the wrong house. As by chance, on the same day the county sent us our new assessment, which went up by 10% of course. At this point, our contractor has to be paid and the original bank is taking forever to review our new appraisel and I am about done with the whole thing. We are very fortunate in that I am going to be able to sell enough stock to cover what we owe, but it was not what I planned when I started this whole thing, and I hate putting so much more cash into the house. Even with the HELOC, we would have been at 80% LTV, and now we will be more like 60%. We don't plan to sell for at least 10 years, so at least I can enjoy my investment :)
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Zanna 3, On my LOC, fully secured by stocks and mutual funds, the rate they quoted a while ago was 6.25%, but the Bank of Canada put their rate up 1/4 point the other day, so it's likely 6.5% now. I haven't used it for some time. Haven't shopped around for competitive offer, either, as I don't plan to use it soon. Do they charge you set-up and/or appraisal fees, or a fee if you let it sit unused for a period? They haven't me. I don't mind borrowing for purposes of investment that I feel has a good posibility of increasing my assets, when I think that conditions warrant. But I rarely borrow for consumer goods or activities, as it seems to me that suggests that I'm living beyond my means. I don't like contracting to pay next year for stuff that I wanted this year but couldn't afford to buy using current income. That makes a double whammy on next year's income, for I have to pay for stuff that I ate this year. Plus I have to pay the guy who owned the money for the privilege of using his, for a while. I claim that I can borrow to invest in quality stocks (or some other assets) for, frequently, almost no net cost. Good wishes as you find more effective ways to manage your money. ole joyful
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Can you get a HELOC from a lender that does not charge a fee for early termination? We got our HELOC through USAA (same place as our mortgage) and we have absolutely NO penalties. We also got a low rate - prime minus 1. If you qualify or already belong to USAA, check them out. We have all our c/c's with them as well as our mortgage, home insurance and some investments.
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Canadians may as well offer you "A penny for your thoughts" ... ... as it won't buy nuthin' else, these days. The bank'll (still) give you a quarter for 25 of 'em, to return to the Mint: don't know how much longer that'll last! Usually a litre (a bit over a quart per U.S. gal.) of 10% cream costs about upwards of $3.99 (in one store 5% usually costs $4.39 - don't ask me why!) . Quite often either kind is on sale for about $1.99. The other day one discount store had 5% cream on sale for 99 cents. If I'd bought two, the price would have been $$1.98 ... so they'd charge me $2.00, "rounding up" the 2 cents. When I bought three, price was $2.97 ... so they "rounded down" to $2.95: saved 2 cents rather than giving 2 cents extra. Trouble was ... those coated paper square canisters were swelled out a bit ... which often indicates that the milk-related contents are approaching the end of their useful life. Don't remember the code date ... but think that it's a couple of weeks in future, at least. What to do to avoid real waste due to spoilage? Gave one to landlord ... who ploughs and cultivates my/our garden ... and treats me well, otherwise ... refusing the loonie that he offered ... thus achieving some Brownie points. Gave another to son and his partner, who's using 1% milk in her coffee quite a bit of the time, for dieting reasons (son likes cream) ... she often gives me supper ... and I take the veggies from the large garden. Using the third myself, displacing the 10% cream carton that I had open ... and am reasonably confident that I don't need to worry about it going bad before it gets back into operation. Such are potential problems when changes are made in one's currency! ole joyfuelled
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jane__ny
Original Author
16 years ago
qdwag is right. I'm thinking if I take the $25,000 and invest it into something, I'd make money from it. I have to pay the heloc at the closing in Feb. from the sale of the house. Even if I stick it in the bank until I decide what to do with it, I couldn't borrow money for less than 3% anywhere.
sushipup1
16 years ago
So this is money that you have to pay back in a few weeks? Any short-term investment that could possibly make more than 3% on an annualized basis (which would also be taxable, don't forget that) would come with risks. What if you invested the money and lost 10% of the value of it?

So I still wouldn't take the money, not unless you have a strong stomach for risk and can handle the loss.
jane__ny
Original Author
16 years ago
I was thinking short term bonds or something that would pay 4-5% tax free. Thats why I posted - maybe someone has an idea.

Jane
kudzu9
16 years ago
jane-
Don't mess with this. It makes no sense. If you somehow got $25,000 of tax free bonds at 4%, your return -- after you subtract the 3% to the bank -- would be 1% on an annualized basis...which would be $250, or about $20 for a month. And that's if you could even find a safe investment that you could get in and out of in a month, which is highly unlikely. Is it really worth the time and risk to possibly make $20?
jane__ny
Original Author
16 years ago
You are right. Doesn't make sense when you do the math...which I didn't.

Thanks,
Jane
C Marlin
16 years ago
I was wondering if you need to make it short term, the HELOC will be paid off at closing. You can still keep your investment if you have equity in the house, what are your future plans for your money?
jane__ny
Original Author
16 years ago
cmarlin20, that's what I was thinking. It would be cash and I could invest it. There are stocks paying over 6%. Maybe some tax free municipals.

Just playing with the thought. It will be paid off with the sale but would give us some cash to 'play' with.
cs6000
16 years ago
Had to chime in on this. At a very basic level, I think it is a dangerous habit to play with borrowed money. Especially in an uncertain market. Very few safe havens out there, and fixed income investments are mired by the low interest rates.

Also, you have to consider transaction fees, on and on. Just bad policy, in my view.
jakkom
16 years ago
If you were to do this - and mind you, I still think it's not a good idea - the only thing worth investing in would be Roth IRAs for both of you. The tax-free compounding in no-load mutual funds in a balanced asset allocation (say, 50-50% bond funds/mutual funds) would be possibly worth it over the years.
kudzu9
16 years ago
jkom51-
I agree it's a bad idea. In addition, though, the OP was intending to invest only until the end of Feb, so a Roth wouldn't work, unless I'm missing something here.
nicole__
16 years ago
I agree with a previous poster. You never invest with borrowed money!

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