Bank of America HELOC Initial Draw Amount

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Topic Author
Kaizen Soze
Posts: 29
Joined: Thu Apr 11, 2019 1:47 pm

Bank of America HELOC Initial Draw Amount

Post by Kaizen Soze » Fri Jan 10, 2020 11:02 am

I'm opening a HELOC (10yr/20yr) with Bank of America and wanted feedback on using the promotional discounts or if my logic is sound.

The 12-month intro rate is 3.24%. After that it's Prime + Margin. There's also a discount for being a preferred member (0.125% gold, 0.25% platinum, 0.375% platinum honors)
The following discounts are available on a new home equity line of credit (HELOC): (1) an “auto pay” discount of 0.25% for setting up automatic payment (at or prior to HELOC account opening) and maintaining such automatic payments from an eligible Bank of America deposit account; (2) an “initial draw” discount of 0.10% for every $10,000 initially withdrawn at account opening (up to 1.50% for initial draws of $150,000 or more) when that minimum balance is maintained for at least the first 3 billing cycles (less any required principal payments); and (3) a 0.25% discount for HELOCs in first lien position at account opening
If I opened a $100k HELOC and needed to draw $30k, would it be better to initially draw the entire $100k, keep it for 3 months, and then pay down $70k? This would provide an extra 0.7% discount for the life of the HELOC. At the 3mo mark I could also upgrade to platinum honors, which I'd lose after 12mo. but would give me 5.25% cash back on my multiple cash rewards cards. I'm currently a gold member.

Rate without extra $70k draw:
Assuming the rate is Prime + 1.25% margin
- 0.25% autopay
- 0.125% gold
- 0.3% $30k initial draw
= Prime + 0.575% after 12mo.

Rate with extra $70k draw:
Assuming the rate is Prime + 1.25% margin
- 0.25% autopay
- 0.125% gold
- 1.0% $100k initial draw
= Prime - 0.125% after 12mo.

Cost to get extra 0.7% initial draw discount:
($70k * 3.24%) * 0.25 (3mo.) = $567

Let's say the plan is to pay down the HELOC $10k/yr. I'm keeping the numbers simple, assume one-time pay down at the end of the year and the prime rate remains at 4.75%.

Without extra $70k draw:
$30k * 3.24% = $972
$20k * (4.75% + 0.575%) = $1,065
$10k * (4.75% + 0.575%) = $535
Total: $2,572 with ongoing HELOC at Prime + 0.575%

With extra $70k draw:
$30k * 3.24% + $567 (cost to get extra discount) = $1,539
$20k * (4.75% - 0.125%) = $925
$10k * (4.75% - 0.125%) = $463
Total: $2,927 with ongoing HELOC at Prime - 0.125%
this scenario reduces the initial draw discount cost by $212 to $355.

I could pay off the HELOC at anytime but that would almost wipe out our emergency fund.

In the future the HELOC *could* be used as a down payment for our next home but we would try to avoid using it. We have a little over 40% home equity but aren't flushed with cash.
Would there be any impact to my credit score by carrying a $100k balance for 3months? My credit utilization has consistently been under 0.5%.

What would a BH do? (besides not taking out debt from a HELOC)

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8foot7
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Re: Bank of America HELOC Initial Draw Amount

Post by 8foot7 » Fri Jan 10, 2020 11:27 am

Kaizen Soze wrote:
Fri Jan 10, 2020 11:02 am

Would there be any impact to my credit score by carrying a $100k balance for 3months? My credit utilization has consistently been under 0.5%.
Yes, drawing $100k on a $100k credit line will negatively affect your credit score.
What would a BH do? (besides not taking out debt from a HELOC)
I would generally not borrow money I didn't need to borrow, especially to only save $300.

You're talking about trying to capture 70 basis points on your "permanent" 30k draw, which amounts to $210/year ($17.50 per month) at its peak and declines as you pay down the balance. If you do this at the wrong time your auto insurance premium could easily go up by that much if your insurer pulls your credit on a certain day.

brushwood
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Re: Bank of America HELOC Initial Draw Amount

Post by brushwood » Fri Jan 10, 2020 12:29 pm

This isn't a direct answer to your question but have you looked at Third Federal for a HELOC? I was recently shopping around and they were the best deal by far, as far as I could tell. There is a $65 annual fee that is waived the first year but the rate is prime minus 1.01%. I think there is a way to get the fee waived if you can get a referral from an existing customer.

Topic Author
Kaizen Soze
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Re: Bank of America HELOC Initial Draw Amount

Post by Kaizen Soze » Fri Jan 10, 2020 1:09 pm

brushwood wrote:
Fri Jan 10, 2020 12:29 pm
This isn't a direct answer to your question but have you looked at Third Federal for a HELOC? I was recently shopping around and they were the best deal by far, as far as I could tell. There is a $65 annual fee that is waived the first year but the rate is prime minus 1.01%. I think there is a way to get the fee waived if you can get a referral from an existing customer.
I looked into PenFed, Third Federal, DCU, BoA, and some local credit unions.

PenFed is marginally better than BoA but comes with a $99 AF if you don't pay $99 in interest for the year.

Third Federal definitely has the best rate but I've read some bad reviews about the process. And there's no teaser rate, a $65 AF, and they charge closing costs for my state.
Same scenario:
$30k * 3.75% = $1,125
$20k * 3.75% + $65 = 815
$10k * 3.75% + $65 = 440
Total = 2,380 + closing costs
Then Prime - 1.01% which is much better but my goal is to let the account sit. There's something psychological about having an AF on an account not in use.

Your suggestion is appreciated though.

brushwood
Posts: 28
Joined: Fri Mar 28, 2008 10:28 am

Re: Bank of America HELOC Initial Draw Amount

Post by brushwood » Fri Jan 10, 2020 1:40 pm

Kaizen Soze wrote:
Fri Jan 10, 2020 1:09 pm
brushwood wrote:
Fri Jan 10, 2020 12:29 pm
This isn't a direct answer to your question but have you looked at Third Federal for a HELOC? I was recently shopping around and they were the best deal by far, as far as I could tell. There is a $65 annual fee that is waived the first year but the rate is prime minus 1.01%. I think there is a way to get the fee waived if you can get a referral from an existing customer.
I looked into PenFed, Third Federal, DCU, BoA, and some local credit unions.

PenFed is marginally better than BoA but comes with a $99 AF if you don't pay $99 in interest for the year.

Third Federal definitely has the best rate but I've read some bad reviews about the process. And there's no teaser rate, a $65 AF, and they charge closing costs for my state.
Same scenario:
$30k * 3.75% = $1,125
$20k * 3.75% + $65 = 815
$10k * 3.75% + $65 = 440
Total = 2,380 + closing costs
Then Prime - 1.01% which is much better but my goal is to let the account sit. There's something psychological about having an AF on an account not in use.

Your suggestion is appreciated though.
Does BOA pay all of the closing costs in your state? I am in FL and might give them another look if they pay the doc stamp tax.

Topic Author
Kaizen Soze
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Joined: Thu Apr 11, 2019 1:47 pm

Re: Bank of America HELOC Initial Draw Amount

Post by Kaizen Soze » Fri Jan 10, 2020 1:52 pm

I'm also in Florida.
Bank of America pays all closing costs on lines up to and including $1,000,000. If you terminate your account within 36 months of opening it, you will be required to pay an Early Closure Fee consisting of (1) a $450 base fee, plus (2) any mortgage and government taxes, recording fees, and any closing agent or attorney fees Bank of America paid on your behalf.

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Harry Livermore
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Re: Bank of America HELOC Initial Draw Amount

Post by Harry Livermore » Fri Jan 10, 2020 2:53 pm

We just got a brand-new $150K HELOC with BOA this summer. Exact same terms you're describing. No closing costs.
It replaces an almost 10 year old line that we had about $30K on (after the initial 10 year period we would not be able to draw on it any more) with a relatively high interest rate... that I had not really been paying attention to :annoyed
We had +/- $70K in our emergency fund, and since I'm self-employed we are always reluctant to let that get much below $50K (yes, I know, un-Boglehead, why not pay down the $30K and STILL have $40K cash? Because I am a 30-year veteran of freelancing and have battle scars to prove it)
Having said that, we were aware that we might end up using this HELOC for college, or maybe a kitchen remodel, or both, and that the additional interest rate discount might be appreciated in the future. So our plan was to draw the whole thing, and then pay back all but $30K, and we'd be in the same situation as before but with a way lower interest rate.
We got the same initial rate as you, plus the discounting based on already being Platinum and auto-pay. We drew down the whole thing to capture the additional discount of 1.51%. I put $50K of that into Goldman/ Marcus bank to capture a $500 bonus and the rest into VG Prime Money Market. At the time, Marcus was 2%, and VG similar. Of course, those interest rates fell slightly over the 3-month period, as I'm sure many BHs will remember...
After the 3 billing cycles, we paid back all but $20K. I left $10K in Marcus, but I had a good third quarter and we had beefed up the EF, so were able to throw a little extra principal at the HELOC.
So, in broad strokes, we paid about $1600 in interest to gain the extra discount for the life of the line. We received, in bonus and interest from Marcus, about $800. We received about $400 from VG.
So, in the end, in cost us around $400 net to save 1.51%.
I will come back in 10 years and tell you if I think that was smart :wink:
Cheers

Topic Author
Kaizen Soze
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Joined: Thu Apr 11, 2019 1:47 pm

Re: Bank of America HELOC Initial Draw Amount

Post by Kaizen Soze » Tue Jan 14, 2020 7:14 pm

Update: Spoke to the BoA lender again. With all the discounts the long-term HELOC rate on an initial $30k draw would be Prime + 0.8%.

Chase offers a $1k checking account bonus if you deposit and maintain a $75k balance for 90 days. I could initially draw $100k, place $75k in a new Chase banking account for 90 days, then pay down the HELOC. I'd pay ~$600 in interest ($75k for 3mo @ 3.24%). I'd net around $200, $1k (taxable bonus) - $600 (interest), and my long-term HELOC rate would drop to Prime + 0.1%.

I'm sure there are BH's that churn banking bonuses. Any risks to consider? Worth the effort? 8foot7 mentioned my car insurance rates may be impacted.

HELOC payment history impacts credit score, however I'm reading conflicting articles on if the HELOC utilization impacts credit score (is or isn't counted w/ credit cards). What's the truth?

Edit: coincidentally just saw the Chase checking 1000$ offer post. I've reached the decision that it's not worth the hassle. Sometimes you just need a little bit of time to see the light. I'm still interested to know if HELOC utilization impacts credit score.

hayhayday
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Re: Bank of America HELOC Initial Draw Amount

Post by hayhayday » Wed Jan 15, 2020 2:09 pm

IIRC lines of credit (heloc , cc etc) utilization has little to no effect on credit score as long as the limit is over 50k

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