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/