HEL or HELOC equal to CD amount or just payoff mortgage?

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HEL or HELOC equal to CD amount or just payoff mortgage?

Postby bogleviewer » Sun Mar 25, 2012 11:43 pm

This is a discussion thread about HEL/HELOC with the same balance as a CD paying the same (if not slightly higher but longer term) rate all initialized at the same time.

Mortgage Initial Loan Balance: ~$180,000
Payment: ~$1300 (not including taxes and insurance)
Term/Rate: 15 year fixed @ 3.5% started 3rd quarter of 2011
Current balance: $110,000 ($80,000 less than what I started with... I've been very aggressive currently paying approximately an extra $4000 toward principal every month.)

The scenario is that I've calculated that I can payoff the remaining balance of $110k and still have several hundred thousand left over that is liquid. It is eatting at me that i'm paying interest on money that I have sitting in liquid MM accounts at roughly ~0.90%. So, yes, technically my mortgage is only costing me ~2.6% which i'll admit is absolutely incredible but the reality is that it is costing me something when it doesn't have to. I have been chalking it up for peace of mind of liquidity but at the same time obviously I don't have the peace of mind because it is wearing on me i'm paying interest when I dont need to.

I am self employed so having a lot of liquidity is important to me. Both my wife and I are educated, but at the same time I don't want to HAVE to work for someone else. We are also starting a family in the coming year whereas right now no kiddios. Further I don't want to have to HAVE my wife work to help make ends meet. We have no other debt.

This week PenFed lowered their 5 year HEL/HELOC products to 2% fixed amortized for 5 years. If I did the full $110k to payoff the mortgage that would put my monthly payment with PenFed at $1928 ~$600 more than my minimum payment now. However, I am also currently putting an extra $4k toward principal every single month and obviously by having much more than that balance in the bank I don't have a problem with the extra $600 a month. I notice PenFed has it where if you pay off or close the HEL/HELOC within the first two years then they will back bill you all of the costs they incurred for doing the loan which I assume is around $1000.

So my thought/strategy that I want to bring up is doing a 5 year HEL/HELOC at 2%, use the money to payoff my 3.5% mortgage and then dump an equal amount of money (~$110k) into a PenFed 5 year CD at 2% or a PenFed 7 year CD at 2.5%. I then have the liquidity I want by simply cashing in a CD if I want to while also not paying any interest from the CD offsetting the HEL/HELOC.

Any thoughts as to why I shouldnt do that for the $110k or maybe even get a larger HEL/HELOC of like $200k and just put an equal amount in a 5 year or 7 year CD with PenFed? Or would I essentially be in the same or better position by not wasting my time and energy doing that and simplify it by just paying off the 3.5% 15 year fixed mortgage with obviously the lack of losing liquidity for the $110k?

PenFed HEL for 5 years @ 2.0%
https://www.penfed.org/home-equity-loan/

PenFed CDs 5 year @ 2% and 7 year @ 2.5%
https://www.penfed.org/money-market-certificate/

Your thoughts?
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Re: HEL or HELOC equal to CD amount or just payoff mortgage?

Postby madbrain » Mon Mar 26, 2012 4:15 am

bogleviewer wrote:This week PenFed lowered their 5 year HEL/HELOC products to 2% fixed amortized for 5 years.


I think that's correct for the HEL, but not for the HELOC.

https://www.penfed.org/Equity-Line-of-Credit/

quote :
OWNER OCCUPIED HOME -
80% OR LESS LOAN TO VALUE
Borrow $10,000 - $400,000

Prime + 0%
Variable 3.75% APR*
(Prime Rate is 3.25% as of
December 27, 2011)

There is a minimum rate floor of 3.75% APR and
a maximum rate of 18%APR
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Re: HEL or HELOC equal to CD amount or just payoff mortgage?

Postby bogleviewer » Mon Mar 26, 2012 12:15 pm

Comments?
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Re: HEL or HELOC equal to CD amount or just payoff mortgage?

Postby DarkGuju » Tue Mar 27, 2012 2:00 pm

Yep I was planning on doing the same thing, but then realized that Penfed might not give me a $100k loan on a $200k house with $100k balance left. If the loan is too small then it turns into a big hassle since then you will have monthly payments for the HEL and also for the leftover mortgage balance. Putting that loan towards the mortgage balance is used as an extra payment, so you still have to make monthly mortgage payments until its fully paid off.
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Re: HEL or HELOC equal to CD amount or just payoff mortgage?

Postby travellight » Tue Mar 27, 2012 2:23 pm

That seems like a fantastic rate at 2% on a home equity loan up to 400K. I thought you had to be military to join Penfed. Can anyone do it?

I would definitely grab this loan, even with a cost of $1000 and pay down your other loan. I personally would not borrow any more than that. I would plan to pay it off within the five years it is fixed at 2%.
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Re: HEL or HELOC equal to CD amount or just payoff mortgage?

Postby travellight » Tue Mar 27, 2012 2:24 pm

I don't care for the HELOC rate at 3.75% but it is not an issue; just get a HEL at 2% for the residual amount of your loan and save the 1.5% difference.
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