First Republic line of credit - 100k @ 2.25%, any concerns?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
cogito
Posts: 311
Joined: Fri Nov 30, 2018 2:12 am

First Republic line of credit - 100k @ 2.25%, any concerns?

Post by cogito »

The other day I was fed a facebook ad for what appeared to be an unbelievable rate for unsecured debt at First Republic. Initially I figured a quick click on the link would reveal it to be too good to be true, although after looking through the disclosures and talking to a rep, it appears that this is in fact the real deal. I wanted to get a sanity check from bogleheads, as I've never opened a personal line of credit, but plan to purchase solar this year, and at these levels, would considering getting rid of our emergency fund if I had immediate access to 100k. With rates going back up, being able to borrow at 2.25% for 7 years seems like I should... max that out, right? I have a high risk tolerance and a tech-industry income, for what its worth.

https://www.firstrepublic.com/personal- ... -of-credit

After talking to the rep, it seems like I will get approved rather easily. The hoops I need to jump through for the promo best rate are:
Opening a checking account and keeping at least 20k there, add direct deposit, and promise not to use it for investments (I didn't bother trying to explain to the rep that money is fungible and this requirement doesn't really make any sense).

Again, are there any red flags I should look out for? My secured mortgage is 2.5% fixed and I have no desire to pay it down, what would be any concerns I should have with taking out 100k at 2.25%? The rep also hinted that I could request up to even 350k. :shock: What am I missing?!
Ron Ronnerson
Posts: 2922
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Ron Ronnerson »

Any prepayment penalty? Can you do longer than a 7 year term at that rate? If you end up investing the money and there is a market downturn over the next few years, would that cause any issues in your ability to pay the loan when the time comes?

I recently did a cash-out refi and took out $150k. It's at 2.375% for 30 years. I did this primarily for increased liquidity but am also going to invest a portion of it in retirement accounts. I'm personally a fan of low-interest debt but proceed carefully so as not to over-extend yourself.
Count of Notre Dame
Posts: 423
Joined: Fri Oct 11, 2013 1:08 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Count of Notre Dame »

I've banked with First Republic for 3 years now and they do have some of the best rates. This PLOC is actually designed to replace their student loan product over the long term. I took out a $100k PLOC at 3.5% which is interest only for the first two years, and then if there's a balance it will amortize over the next 13 for a total of 15 years. I don't know if First Republic will let me just keep renewing the loan without letting it amortize, but I originally took it out as an emergency fund that I don't really need. Personally, if I have a large taxable portfolio I would just margin that if I needed extra cash flow from time to time as the paperwork to renew every 2 years, and the chance they may not, would be annoying. Like most banks it does not seem that First Republic really tries to enforce how you use the money (but don't be blatant about it). They are also fairly lenient with my checking account dipping below $20k for a few days each month as well, although my average balance is over $20k. I also have a 2.75% 70 LTV jumbo I/O mortgage with them as well which was not based on any AUM discounts - my brokerage is with Vanguard. I also took out a HELOC with another bank as an emergency fund, before I opened the PLOC with First Republic.
Count of Notre Dame
Posts: 423
Joined: Fri Oct 11, 2013 1:08 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Count of Notre Dame »

Ron Ronnerson wrote: Thu Mar 04, 2021 9:35 pm Any prepayment penalty? Can you do longer than a 7 year term at that rate? If you end up investing the money and there is a market downturn over the next few years, would that cause any issues in your ability to pay the loan when the time comes?

I recently did a cash-out refi and took out $150k. It's at 2.375% for 30 years. I did this primarily for increased liquidity but am also going to invest a portion of it in retirement accounts. I'm personally a fan of low-interest debt but proceed carefully so as not to over-extend yourself.
What was your LTV and was your mortgage a jumbo? Most banks I've seen don't offer a good interest rate on a cash out refinance, so that is a fantastic deal for you. Well done!
Grt2bOutdoors
Posts: 24884
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Grt2bOutdoors »

They can cut the line of credit at ANY time unless you are getting a committed agreement. Are you? Don’t be like those people who got a rude awakening when their lines of credit both personal and HELOCs went the way of the dodo bird back in 2008 and more recently last year when the banks gave a repeat performance. Your idea of an emergency fund is not the same as the banks risk managers. In an emergency they will either freeze it or get rid of it outright. Cash is king for a reason.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Ron Ronnerson
Posts: 2922
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Ron Ronnerson »

Count of Notre Dame wrote: Thu Mar 04, 2021 10:16 pm
Ron Ronnerson wrote: Thu Mar 04, 2021 9:35 pm Any prepayment penalty? Can you do longer than a 7 year term at that rate? If you end up investing the money and there is a market downturn over the next few years, would that cause any issues in your ability to pay the loan when the time comes?

I recently did a cash-out refi and took out $150k. It's at 2.375% for 30 years. I did this primarily for increased liquidity but am also going to invest a portion of it in retirement accounts. I'm personally a fan of low-interest debt but proceed carefully so as not to over-extend yourself.
What was your LTV and was your mortgage a jumbo? Most banks I've seen don't offer a good interest rate on a cash out refinance, so that is a fantastic deal for you. Well done!
The loan amount was $495k so it was a conventional loan. We stated the house value as $850k and that was accepted without an appraisal being required. It was a no-cost refinance with no escrow account. If we had not taken cash out, the rate would have been 2.25% at no-cost (two different lenders offered this rate for a 30-year). We started the refinance process at the end of November and closed at the end of January; rates were a little bit lower than they are currently. We live in a townhome community and the homes here were selling for around $850k-$900k at the end of 2020. Two of our neighbors with very similar homes as ours recently sold theirs in the past month, one for $970k and the other for $980k. So the value seems to have gone up some in the past couple of months.
Goal33
Posts: 1939
Joined: Sun Apr 12, 2015 12:30 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Goal33 »

No concerns. It's the real deal. There are no gotchas.
Startled Cat
Posts: 579
Joined: Thu Apr 03, 2008 8:54 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Startled Cat »

I'm thinking about using this as a backstop for IB margin (currently 1.57% below $100k, and less above). Buying ETFs on margin would qualify for the investment interest expense tax deduction, making the effective interest rate even lower. But margin rates can fluctuate and the amount of collateral required is also subject to change. Having a low-interest fix rate unsecured line of credit to draw from would effectively put a cap on the margin interest rate, since it would be possible to draw from the credit line to pay off the margin loan if necessary.
Startled Cat
Posts: 579
Joined: Thu Apr 03, 2008 8:54 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Startled Cat »

Their terms say:
Rates shown include relationship-based pricing adjustments of: 1) 2.00% for maintaining automatic payments and direct deposit with the Account, 2) 0.50% for depositing and maintaining a deposit balance of at least 10% of the approved loan amount into the Account, and 3) an additional 0.25% for depositing and maintaining a deposit balance of at least 20% of the approved loan amount into the Account.
I wonder if it's possible to open the checking account with minimum funding ($3,500), and then start direct deposits and maintaining a 10% or 20% balance only once drawing from the credit line makes the rate discount worthwhile (or are the discounts taken into account upfront when opening the credit line)?
Admiral
Posts: 4285
Joined: Mon Oct 27, 2014 12:35 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Admiral »

cogito wrote: Thu Mar 04, 2021 7:48 pm The other day I was fed a facebook ad for what appeared to be an unbelievable rate for unsecured debt at First Republic. Initially I figured a quick click on the link would reveal it to be too good to be true, although after looking through the disclosures and talking to a rep, it appears that this is in fact the real deal. I wanted to get a sanity check from bogleheads, as I've never opened a personal line of credit, but plan to purchase solar this year, and at these levels, would considering getting rid of our emergency fund if I had immediate access to 100k. With rates going back up, being able to borrow at 2.25% for 7 years seems like I should... max that out, right? I have a high risk tolerance and a tech-industry income, for what its worth.

https://www.firstrepublic.com/personal- ... -of-credit

After talking to the rep, it seems like I will get approved rather easily. The hoops I need to jump through for the promo best rate are:
Opening a checking account and keeping at least 20k there, add direct deposit, and promise not to use it for investments (I didn't bother trying to explain to the rep that money is fungible and this requirement doesn't really make any sense).

Again, are there any red flags I should look out for? My secured mortgage is 2.5% fixed and I have no desire to pay it down, what would be any concerns I should have with taking out 100k at 2.25%? The rep also hinted that I could request up to even 350k. :shock: What am I missing?!
This is a fixed rate not floating like a HELOC? For seven years?
User avatar
MetaPhysician
Posts: 76
Joined: Sat Jul 07, 2018 7:18 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by MetaPhysician »

I was over the moon when I first learned about this then I realized...pls correct me if I'm mistaken...

1. It is actually higher than 2.25% because there is a two year draw period with interest only payments
2. I can't invest the money with it. I have to purchase something.
3. I can't take less than what I originally ask for if something changes.
4. If I ask for the funds in the first two years and don't use them I still have to pay interest on them.
5. Would have to park 20% in there to get the best rate. Illiquidity with no large upside.

Not necessarily inherently bad things but rather didn't provide what I was looking for personally.
Silk McCue
Posts: 7352
Joined: Thu Feb 25, 2016 7:11 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Silk McCue »

Admiral wrote: Fri Mar 05, 2021 10:41 am This is a fixed rate not floating like a HELOC? For seven years?
That is correct. Or 10 years at 2.75%

Cheers
Silk McCue
Posts: 7352
Joined: Thu Feb 25, 2016 7:11 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Silk McCue »

MetaPhysician wrote: Fri Mar 05, 2021 11:08 am I was over the moon when I first learned about this then I realized...pls correct me if I'm mistaken...

1. It is actually higher than 2.25% because there is a two year draw period with interest only payments
2. I can't invest the money with it. I have to purchase something.
3. I can't take less than what I originally ask for if something changes.
4. If I ask for the funds in the first two years and don't use them I still have to pay interest on them.
5. Would have to park 20% in there to get the best rate. Illiquidity with no large upside.

Not necessarily inherently bad things but rather didn't provide what I was looking for personally.
1. No one is stopping you from paying principal from day one. Regardless of how you cut it the APR is the rate regardless of how you choose to pay.
2. Money is fungible. You can figure this out.
3. You aren’t forced to take a single dime out. It’s a LOC.
4. Yes, if you draw funds and don’t use them you have to pay interest. The solution is to not to that.
5. This is true. However if you use the funds in manner that is strategically beneficial to use it is an incredibly good offer even with the 20% parking of funds given the low rate of safe return available today.

Cheers
Count of Notre Dame
Posts: 423
Joined: Fri Oct 11, 2013 1:08 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Count of Notre Dame »

Startled Cat wrote: Fri Mar 05, 2021 10:25 am I'm thinking about using this as a backstop for IB margin (currently 1.57% below $100k, and less above). Buying ETFs on margin would qualify for the investment interest expense tax deduction, making the effective interest rate even lower. But margin rates can fluctuate and the amount of collateral required is also subject to change. Having a low-interest fix rate unsecured line of credit to draw from would effectively put a cap on the margin interest rate, since it would be possible to draw from the credit line to pay off the margin loan if necessary.
This is my plan as well. I would just calculate your worst case scenario margin call situation and make sure you have enough available credit to meet the margin call. My HELOC also serves this purpose. I would think the best thing to do would be to buy more of the ETFs as the price falls, rather than payoff the margin loan though? That would be the definition of forcing yourself to buy low?
Topic Author
cogito
Posts: 311
Joined: Fri Nov 30, 2018 2:12 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by cogito »

Thanks for the feedback everyone. I've applied and am waiting to hear back. The rep said it was taking 1-2 weeks through their credit/underwriting department, presumably because they are totally slammed. I look forward to totally not using this money to invest, but instead pay expenses with with the LoC so I can invest my emergency fund. Gee, I hope none of the dollars themselves get mixed up with each other in transit. :twisted:
moneybags
Posts: 64
Joined: Wed Jul 13, 2011 4:55 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by moneybags »

Wow such a timely thread. Thank you for posting this! Was planning on taking out a margin loan at M1 for 2% for 6 months but 2.25% for 7 years is way better. I spoke to a rep and he said that you can borrow up to 100K without having to have it applied to another loan. No pre-payment penalties. Just need to keep 20% of the loan balance in a checking account for the best rate. Pretty incredible.
Admiral
Posts: 4285
Joined: Mon Oct 27, 2014 12:35 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Admiral »

cogito wrote: Fri Mar 05, 2021 12:08 pm Thanks for the feedback everyone. I've applied and am waiting to hear back. The rep said it was taking 1-2 weeks through their credit/underwriting department, presumably because they are totally slammed. I look forward to totally not using this money to invest, but instead pay expenses with with the LoC so I can invest my emergency fund. Gee, I hope none of the dollars themselves get mixed up with each other in transit. :twisted:
As you say money is fungible. However this is still taking out a loan to invest (granted with no collateral I guess? Which seems odd.) Or are you only planning on using it in an emergency and just ignore your emergency fund since it will be invested?

So there is zero cost until you actually pull the funds?

I guess they are betting interest rates drop? The fixed nature of this seems what's odd. If rates go up it seems like a bad deal for them. Though maybe they make their money on lending your money you have to keep with them?
mervinj7
Posts: 2360
Joined: Thu Mar 27, 2014 3:10 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by mervinj7 »

cogito wrote: Thu Mar 04, 2021 7:48 pm The other day I was fed a facebook ad for what appeared to be an unbelievable rate for unsecured debt at First Republic. Initially I figured a quick click on the link would reveal it to be too good to be true, although after looking through the disclosures and talking to a rep, it appears that this is in fact the real deal. I wanted to get a sanity check from bogleheads, as I've never opened a personal line of credit, but plan to purchase solar this year, and at these levels, would considering getting rid of our emergency fund if I had immediate access to 100k. With rates going back up, being able to borrow at 2.25% for 7 years seems like I should... max that out, right? I have a high risk tolerance and a tech-industry income, for what its worth.

https://www.firstrepublic.com/personal- ... -of-credit

After talking to the rep, it seems like I will get approved rather easily. The hoops I need to jump through for the promo best rate are:
Opening a checking account and keeping at least 20k there, add direct deposit, and promise not to use it for investments (I didn't bother trying to explain to the rep that money is fungible and this requirement doesn't really make any sense).

Again, are there any red flags I should look out for? My secured mortgage is 2.5% fixed and I have no desire to pay it down, what would be any concerns I should have with taking out 100k at 2.25%? The rep also hinted that I could request up to even 350k. :shock: What am I missing?!
Anybody know if there are any red flags when considering refinancing one's home mortgage? That is, if I open up a $100k personal line of credit and don't use it, is it at all detrimental to getting the lowest rates on a refinance? Since it's unsecured, I assumed it wouldn't be. Seems like a much better option than my HELOC which does count against the LTV for loan.
Count of Notre Dame
Posts: 423
Joined: Fri Oct 11, 2013 1:08 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Count of Notre Dame »

mervinj7 wrote: Fri Mar 05, 2021 4:11 pm
cogito wrote: Thu Mar 04, 2021 7:48 pm The other day I was fed a facebook ad for what appeared to be an unbelievable rate for unsecured debt at First Republic. Initially I figured a quick click on the link would reveal it to be too good to be true, although after looking through the disclosures and talking to a rep, it appears that this is in fact the real deal. I wanted to get a sanity check from bogleheads, as I've never opened a personal line of credit, but plan to purchase solar this year, and at these levels, would considering getting rid of our emergency fund if I had immediate access to 100k. With rates going back up, being able to borrow at 2.25% for 7 years seems like I should... max that out, right? I have a high risk tolerance and a tech-industry income, for what its worth.

https://www.firstrepublic.com/personal- ... -of-credit

After talking to the rep, it seems like I will get approved rather easily. The hoops I need to jump through for the promo best rate are:
Opening a checking account and keeping at least 20k there, add direct deposit, and promise not to use it for investments (I didn't bother trying to explain to the rep that money is fungible and this requirement doesn't really make any sense).

Again, are there any red flags I should look out for? My secured mortgage is 2.5% fixed and I have no desire to pay it down, what would be any concerns I should have with taking out 100k at 2.25%? The rep also hinted that I could request up to even 350k. :shock: What am I missing?!
Anybody know if there are any red flags when considering refinancing one's home mortgage? That is, if I open up a $100k personal line of credit and don't use it, is it at all detrimental to getting the lowest rates on a refinance? Since it's unsecured, I assumed it wouldn't be. Seems like a much better option than my HELOC which does count against the LTV for loan.
I think it limits your getting new credit to the extent you have a balance and therefore a required payment. I've had a primary mortgage, personal line of credit, and HELOC all at the same time but only the mortgage had a balance.
Topic Author
cogito
Posts: 311
Joined: Fri Nov 30, 2018 2:12 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by cogito »

moneybags wrote: Fri Mar 05, 2021 1:17 pm Wow such a timely thread. Thank you for posting this! Was planning on taking out a margin loan at M1 for 2% for 6 months but 2.25% for 7 years is way better. I spoke to a rep and he said that you can borrow up to 100K without having to have it applied to another loan. No pre-payment penalties. Just need to keep 20% of the loan balance in a checking account for the best rate. Pretty incredible.
Similarly, I also carry margin debt at M1, but its also where I run hedgefundie, so its only in the area of 5-10k at any time. Honestly I will probably just pay off my margin balance with the LoC, even though its a quarter point higher, it's guaranteed for 7 years, not secured, and I won't have to monitor it. No pre-payment penalties that I can find.
Admiral wrote: Fri Mar 05, 2021 3:35 pm
As you say money is fungible. However this is still taking out a loan to invest (granted with no collateral I guess? Which seems odd.) Or are you only planning on using it in an emergency and just ignore your emergency fund since it will be invested?

So there is zero cost until you actually pull the funds?

I guess they are betting interest rates drop? The fixed nature of this seems what's odd. If rates go up it seems like a bad deal for them. Though maybe they make their money on lending your money you have to keep with them?
I'll likely do a bit of all of the above. My emergency fund right now is already small (3 months expenses), so I will invest that, purchase Tesla Solar (20-30kish), pay off a little of my M1 Margin, invest maybe 10-20k, and then leave whatever is left in the LoC as accessible cash in an emergency. I am liquid enough with plenty of assets where I feel like I don't need an emergency fund in the first place, I am fine selling stocks in a downturn if I lose my job. I don't know how they plan to make money off of me, although the phone rep indicated that this offer was intentioned to be an opening salvo in an "ongoing banking relationship", so this may be a loss-leader program for high-earners that leads to wealth management, mortgage refi's, and primary checking customers. I can't imagine the loan itself will be good for them 3-4 years from now.
mervinj7 wrote: Fri Mar 05, 2021 4:11 pm
Anybody know if there are any red flags when considering refinancing one's home mortgage? That is, if I open up a $100k personal line of credit and don't use it, is it at all detrimental to getting the lowest rates on a refinance? Since it's unsecured, I assumed it wouldn't be. Seems like a much better option than my HELOC which does count against the LTV for loan.
My expectation is that it would work similarly to a credit card, right? The new credit line will get listed on your report and lower your average age of credit, and the line itself would be listed at zero unless you drew down the limit. Luckily, I completed my last refi 3 months ago, getting down to 2.5% fixed on my 30 year, so with the recent bump in interest rates I am not expecting to be needing to worry about a better refi deal anytime soon.
User avatar
Raraculus
Posts: 208
Joined: Sat Jul 20, 2019 10:43 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Raraculus »

cogito wrote: Thu Mar 04, 2021 7:48 pmAfter talking to the rep, it seems like I will get approved rather easily. The hoops I need to jump through for the promo best rate are:
Opening a checking account and keeping at least 20k there, add direct deposit, and promise not to use it for investments (I didn't bother trying to explain to the rep that money is fungible and this requirement doesn't really make any sense).
Just wanted to double-check; I understand the part about opening a checking account to obtain a relationship discount on this LOC with First Republic. But, maintaining 20K in the account? Or that you can draw down the entire LOC except for the last 20K?

If it's the former, i.e., you need $20K in the checking account, then count me out.
User avatar
camillus
Posts: 952
Joined: Thu Feb 28, 2013 9:55 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by camillus »

If you imagine that you'd need to draw from the LOC to fund the 20k in checking, then the rate actually only applies to the 80k available, making the effective rate ~2.8125%, which is somewhat less cool.

Say you only draw 30k, but you need to park $20k in checking earning zero. Your effective rate on the 30k is ~3.75%.

The whole deal only works if you have cash sitting somewhere (earning zero) to invest. Money is fungible - as you say.
51% US / 34% ex-US / 15% “bond”
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Tingting1013 »

camillus wrote: Sun Mar 07, 2021 1:39 am If you imagine that you'd need to draw from the LOC to fund the 20k in checking, then the rate actually only applies to the 80k available, making the effective rate ~2.8125%, which is somewhat less cool.

Say you only draw 30k, but you need to park $20k in checking earning zero. Your effective rate on the 30k is ~3.75%.

The whole deal only works if you have cash sitting somewhere (earning zero) to invest. Money is fungible - as you say.
If you only needed to borrow $30k you would only need $6k in checking
User avatar
camillus
Posts: 952
Joined: Thu Feb 28, 2013 9:55 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by camillus »

Tingting1013 wrote: Sun Mar 07, 2021 1:49 amIf you only needed to borrow $30k you would only need $6k in checking
Gotcha. Then I guess the effective rate is ~2.8125%. (2.25 * 1.25) at a minimum and higher, right?

You need a $6k checking requirement to secure a $30k loan. But then you only draw 6k. Is your effective rate 4.5%? (Whereas you could have spent your own $6k.)

What happens if you drop below the cash requirement in checking?

Edit: Answer - Your rate jumps 0.25%. It jumps another 0.50% if you go lower than 10% of the line in checking. It also jumps 2% if you lose direct deposit. It jumps 5% if your checking account is closed. I'm not sure if these things are cumulative...

So, let's reflect on a 100k LOC, which requires a 20k deposit. This 20k is your "emergency fund." Imagine a scenario where you actually need to use this 20k as an emergency fund (you lost your job). In this case, you owe First Republic 100k at 5% and have no other cash or credit. (If they choose to close your checking account, the rate goes to 10% per apparent terms.)

Since you probably would never let yourself get into this situation, I'd argue that the 20k is no longer your emergency fund and is now simply an opportunity cost that should be reckoned against the rate. If you have a 100k LOC, why do you need the cash on hand anyway?

I'll bet for most uses, the effective rate on this LOC is 3-4%+ which is in the territory of a bad mortgage or a good credit card.
51% US / 34% ex-US / 15% “bond”
London
Posts: 435
Joined: Sun Dec 11, 2016 11:50 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by London »

camillus wrote: Sun Mar 07, 2021 2:05 am
Tingting1013 wrote: Sun Mar 07, 2021 1:49 amIf you only needed to borrow $30k you would only need $6k in checking
Gotcha. Then I guess the effective rate is ~2.8125%. (2.25 * 1.25) at a minimum and higher, right?

You need a $6k checking requirement to secure a $30k loan. But then you only draw 6k. Is your effective rate 4.5%? (Whereas you could have spent your own $6k.)

What happens if you drop below the cash requirement in checking?

Edit: Answer - Your rate jumps 0.25%. It jumps another 0.50% if you go lower than 10% of the line in checking. It also jumps 2% if you lose direct deposit. It jumps 5% if your checking account is closed. I'm not sure if these things are cumulative...

So, let's reflect on a 100k LOC, which requires a 20k deposit. This 20k is your "emergency fund." Imagine a scenario where you actually need to use this 20k as an emergency fund (you lost your job). In this case, you owe First Republic 100k at 5% and have no other cash or credit. (If they choose to close your checking account, the rate goes to 10% per apparent terms.)

Since you probably would never let yourself get into this situation, I'd argue that the 20k is no longer your emergency fund and is now simply an opportunity cost that should be reckoned against the rate. If you have a 100k LOC, why do you need the cash on hand anyway?

I'll bet for most uses, the effective rate on this LOC is 3-4%+ which is in the territory of a bad mortgage or a good credit card.
Good analysis. That said, I see no “good credit card” option that will give you a rate anywhere near this for the duration being discussed.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Tingting1013 »

camillus wrote: Sun Mar 07, 2021 2:05 am
Tingting1013 wrote: Sun Mar 07, 2021 1:49 amIf you only needed to borrow $30k you would only need $6k in checking
Gotcha. Then I guess the effective rate is ~2.8125%. (2.25 * 1.25) at a minimum and higher, right?

You need a $6k checking requirement to secure a $30k loan. But then you only draw 6k. Is your effective rate 4.5%? (Whereas you could have spent your own $6k.)

What happens if you drop below the cash requirement in checking?

Edit: Answer - Your rate jumps 0.25%. It jumps another 0.50% if you go lower than 10% of the line in checking. It also jumps 2% if you lose direct deposit. It jumps 5% if your checking account is closed. I'm not sure if these things are cumulative...

So, let's reflect on a 100k LOC, which requires a 20k deposit. This 20k is your "emergency fund." Imagine a scenario where you actually need to use this 20k as an emergency fund (you lost your job). In this case, you owe First Republic 100k at 5% and have no other cash or credit. (If they choose to close your checking account, the rate goes to 10% per apparent terms.)

Since you probably would never let yourself get into this situation, I'd argue that the 20k is no longer your emergency fund and is now simply an opportunity cost that should be reckoned against the rate. If you have a 100k LOC, why do you need the cash on hand anyway?

I'll bet for most uses, the effective rate on this LOC is 3-4%+ which is in the territory of a bad mortgage or a good credit card.
No credit card I am aware of offers an interest rate of 2.825% with a credit limit of $350k.
User avatar
camillus
Posts: 952
Joined: Thu Feb 28, 2013 9:55 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by camillus »

Please omit my credit card comment if that’s a distraction.

But for the record, here’s a ~6.25% credit card: https://www.lmcu.org/personal/banking/c ... inum-visa/

The point is, this isn’t a free lunch to take and play arbitrage pretend. This rate - accounting for opportunity cost - is probably higher than your mortgage.

Another example of opportunity cost:
If you’re into leveraged arbitrage, you are probably okay with chasing bank account bonuses. Your 20k and direct deposit could probably earn $2-4k (or 10-20%) in one year without risk.
Tingting1013 wrote: Sun Mar 07, 2021 7:40 amNo credit card I am aware of offers an interest rate of 2.825% with a credit limit of $350k.
Imagine losing your job and owing the bank $350k at 10%.

“I would never do that.”

Exactly.

That LOC requires you to park $70k of your cash at 0%.
51% US / 34% ex-US / 15% “bond”
London
Posts: 435
Joined: Sun Dec 11, 2016 11:50 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by London »

camillus wrote: Sun Mar 07, 2021 9:18 am Please omit my credit card comment if that’s a distraction.

But for the record, here’s a ~6.25% credit card: https://www.lmcu.org/personal/banking/c ... inum-visa/

The point is, this isn’t a free lunch to take and play arbitrage pretend. This rate - accounting for opportunity cost - is probably higher than your mortgage.

Another example of opportunity cost:
If you’re into leveraged arbitrage, you are probably okay with chasing bank account bonuses. Your 20k and direct deposit could probably earn $2-4k (or 10-20%) in one year without risk.
Tingting1013 wrote: Sun Mar 07, 2021 7:40 amNo credit card I am aware of offers an interest rate of 2.825% with a credit limit of $350k.
Imagine losing your job and owing the bank $350k at 10%.

“I would never do that.”

Exactly.

That LOC requires you to park $70k of your cash at 0%.
The CC example given is more than twice the interest rate and has a max of $25k. Complete apples and oranges even if all other points are correct.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Tingting1013 »

London wrote: Sun Mar 07, 2021 11:21 am
camillus wrote: Sun Mar 07, 2021 9:18 am Please omit my credit card comment if that’s a distraction.

But for the record, here’s a ~6.25% credit card: https://www.lmcu.org/personal/banking/c ... inum-visa/

The point is, this isn’t a free lunch to take and play arbitrage pretend. This rate - accounting for opportunity cost - is probably higher than your mortgage.

Another example of opportunity cost:
If you’re into leveraged arbitrage, you are probably okay with chasing bank account bonuses. Your 20k and direct deposit could probably earn $2-4k (or 10-20%) in one year without risk.
Tingting1013 wrote: Sun Mar 07, 2021 7:40 amNo credit card I am aware of offers an interest rate of 2.825% with a credit limit of $350k.
Imagine losing your job and owing the bank $350k at 10%.

“I would never do that.”

Exactly.

That LOC requires you to park $70k of your cash at 0%.
The CC example given is more than twice the interest rate and has a max of $25k. Complete apples and oranges even if all other points are correct.
Not to mention all credit cards are variable rate, not fixed rate.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Tingting1013 »

The 20% deposit requirement for 2.25% is actually just one option, and it may not be the most attractive one:

Image
Image
Image
inverter
Posts: 746
Joined: Mon Jul 27, 2015 1:40 pm
Location: New York, NY

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by inverter »

By the way, my entire banking relationship is with First Republic Bank. Highly recommend them for everything -- checking, savings, etc.
nycbanker25
Posts: 5
Joined: Sun Mar 07, 2021 12:04 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by nycbanker25 »

I refied my student loans with them at a rate of 1.9% and it was later converted into this product.

They are looking to build your entire banking relationship with them. Their rates are super competitive on loans was quoted 2.75% on a 30 year fixed a week ago and was told they will come down if needed to beat a competitor. Too bad the housing market is a mess.

Would highly recommend FRB customer service is also top notch.
Oregano
Posts: 347
Joined: Fri Nov 22, 2019 9:30 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Oregano »

Am I the first one to be told I'm outside their coverage area? I was all excited about this, but I guess I'm not eligible.
moneybags
Posts: 64
Joined: Wed Jul 13, 2011 4:55 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by moneybags »

I personally already use First Republic for our main checking account and it almost always has 20k so the 20% requirement is a non-issue. I see how it could be for those who don't already use First Republic for their checking. However I would suggest you consider it. The customer service is great and they reimburse all ATM fees worldwide.
RobLyons
Posts: 1564
Joined: Tue Oct 31, 2017 12:55 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by RobLyons »

Ugh this is so tempting, considering I really would like to do some home upgrades!
Must stay disciplined...
"Great parenting sets the foundation for a better world"
ras4250
Posts: 193
Joined: Tue Mar 04, 2014 1:25 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by ras4250 »

This was available last summer. I took advantage of it with intent to have as an emergency backstop in case I needed money from something happening with the pandemic. I have not had to touch it.

The downside is that the draw period is only 2 years. If you don’t draw anything it is gone. I was not a First Republic customer before this. So I switched this to be my primary checking account. I did the maximum loc of $100k.

As to comments about how they will make money the rep I talked to said they are using this as a funnel to get your banking relationship beyond this product.

I don’t know the answer to the question posed above if you don’t have money drawn down can they revoke the loc before the draw period is up. Good question id like to know the answer to.

As it is such a low fixed rate for 5 years at end of draw period I will have to see how rates are then and decide if it’s worth drawing down to do something with.
User avatar
MetaPhysician
Posts: 76
Joined: Sat Jul 07, 2018 7:18 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by MetaPhysician »

Silk McCue wrote: Fri Mar 05, 2021 11:45 am
MetaPhysician wrote: Fri Mar 05, 2021 11:08 am I was over the moon when I first learned about this then I realized...pls correct me if I'm mistaken...

1. It is actually higher than 2.25% because there is a two year draw period with interest only payments
2. I can't invest the money with it. I have to purchase something.
3. I can't take less than what I originally ask for if something changes.
4. If I ask for the funds in the first two years and don't use them I still have to pay interest on them.
5. Would have to park 20% in there to get the best rate. Illiquidity with no large upside.

Not necessarily inherently bad things but rather didn't provide what I was looking for personally.
1. No one is stopping you from paying principal from day one. Regardless of how you cut it the APR is the rate regardless of how you choose to pay.
2. Money is fungible. You can figure this out.
3. You aren’t forced to take a single dime out. It’s a LOC.
4. Yes, if you draw funds and don’t use them you have to pay interest. The solution is to not to that.
5. This is true. However if you use the funds in manner that is strategically beneficial to use it is an incredibly good offer even with the 20% parking of funds given the low rate of safe return available today.

Cheers
I stand corrected. You have the most up-to-date information. When I originally looked at it it was for student loans and then I believe for a personal loan. Now, though, as you have mentioned, it is a personal line of credit. I agree with the strategic use of asset-backed loans.
Startled Cat
Posts: 579
Joined: Thu Apr 03, 2008 8:54 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Startled Cat »

Startled Cat wrote: Fri Mar 05, 2021 10:30 am Their terms say:
Rates shown include relationship-based pricing adjustments of: 1) 2.00% for maintaining automatic payments and direct deposit with the Account, 2) 0.50% for depositing and maintaining a deposit balance of at least 10% of the approved loan amount into the Account, and 3) an additional 0.25% for depositing and maintaining a deposit balance of at least 20% of the approved loan amount into the Account.
I wonder if it's possible to open the checking account with minimum funding ($3,500), and then start direct deposits and maintaining a 10% or 20% balance only once drawing from the credit line makes the rate discount worthwhile (or are the discounts taken into account upfront when opening the credit line)?
I spoke to someone at the bank and learned that the discount is a long-term commitment. The balance in the checking account needs to be funded at the time the loan is finalized, and if it drops below the required threshold, they may raise the interest rate on the LOC. The interest rate would not be adjusted back down if the checking account balance is restored.

This makes me slightly less enthusiastic about the product, but I will probably go ahead and apply anyway. I think of it as a ~$50/year fee in lost interest for a $100k LOC.
yoyo6713
Posts: 145
Joined: Thu May 10, 2018 8:48 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by yoyo6713 »

I saw this and decided to give it a shot. It only took two days to get approved. It did ding all three credit scores(I should have frozen two, Inquiry from “Factual Data”)which sucked. Scores went down 3 points in each report.
newbogle1337
Posts: 1
Joined: Mon Mar 29, 2021 12:26 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by newbogle1337 »

yoyo6713 wrote: Wed Mar 17, 2021 10:52 pm I saw this and decided to give it a shot. It only took two days to get approved. It did ding all three credit scores(I should have frozen two, Inquiry from “Factual Data”)which sucked. Scores went down 3 points in each report.
That's amazing -- what did you (or anyone else in this thread) say was your reason for applying? I spoke to a loan officer that said my chances would be slim bc I am seeking a LOC for a home renovation...
grkmec
Posts: 221
Joined: Wed Jun 22, 2016 8:46 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by grkmec »

This is a bizarre offering to me. A personal LOC for 2.25% that is unsecured. I asked my guy at First Republic what their HELOC pricing was, and he said Prime + 1%, max CLTV of 60%. So they are pricing unsecured risk 200bps below a very low LTV secured, and the unsecured is fixed, while the HELOC can only float up. File this away in the cabinet labeled, "stuff that doesn't make any sense"
yoyo6713
Posts: 145
Joined: Thu May 10, 2018 8:48 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by yoyo6713 »

grkmec wrote: Wed Mar 31, 2021 10:42 pm This is a bizarre offering to me. A personal LOC for 2.25% that is unsecured. I asked my guy at First Republic what their HELOC pricing was, and he said Prime + 1%, max CLTV of 60%. So they are pricing unsecured risk 200bps below a very low LTV secured, and the unsecured is fixed, while the HELOC can only float up. File this away in the cabinet labeled, "stuff that doesn't make any sense"
Its a loss leader.
yoyo6713
Posts: 145
Joined: Thu May 10, 2018 8:48 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by yoyo6713 »

newbogle1337 wrote: Mon Mar 29, 2021 12:27 pm
yoyo6713 wrote: Wed Mar 17, 2021 10:52 pm I saw this and decided to give it a shot. It only took two days to get approved. It did ding all three credit scores(I should have frozen two, Inquiry from “Factual Data”)which sucked. Scores went down 3 points in each report.
That's amazing -- what did you (or anyone else in this thread) say was your reason for applying? I spoke to a loan officer that said my chances would be slim bc I am seeking a LOC for a home renovation...
I told them I need a bridge loan: my 10 year CDs are maturing in July and I am thinking about buying my apartment. I did send them bank statement for the CDs.

I remember after I said it they said that should qualify for the loan. Apparently there are certain things you will be denied for like investing the money in stocks. So if you say you are thinking about using the fund to buy a Tesla you likely will get approved. Of course if you don't in the end probably does not matter.

I had 30 days to finalize the loan after it is approved but I was a bit tired of getting their emails counting down the days. Today I e-signed the doc and wired 15K into an existing checking account (I had this checking account for year, it allows me to withdraw cash from overseas ATM for free) to meet the 20K requirement and I will probably need to redirect my direct deposit to 1st republic as well to keep the rate at 2.25%.
moneybags
Posts: 64
Joined: Wed Jul 13, 2011 4:55 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by moneybags »

I just finalized the application and approval process. It was a pretty painless process. It took 6 business day from application to being approved. After approval, once signed, it took 1 business day for the line of credit to be available. They said it takes a week for the line of credit to be available in the online banking portal but pretty sure I can draw on it now if I call them.

FYI there is a $300 referral bonus available to both the person referred and the person who refers. PM me if you'd like a referral.
Topic Author
cogito
Posts: 311
Joined: Fri Nov 30, 2018 2:12 am

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by cogito »

Just an update: Application has gone through, approved, and after getting everything set up online I immediately drew down about 50k, and sent some of it to my primary Chase account. At 2.25% for 7 years I intend to max the entire thing out shortly. Everyone has been and helpful, and they quickly jumped on top of an issue where my LoC was not showing up in my online account. Hey who knows, they just may win me as a customer for my primary checking business. They sent me a little duffel bag by fedex that showed up this morning. :D
TechieTechie
Posts: 107
Joined: Tue Mar 06, 2018 7:36 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by TechieTechie »

I'm SO ticked they don't work in my state...would love to expand out of my current bank.
yoyo6713
Posts: 145
Joined: Thu May 10, 2018 8:48 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by yoyo6713 »

I was also worried about credit utilization. They said it won't be reported to credit bureaus. At least not now but they do reserve the right to report.
Startled Cat
Posts: 579
Joined: Thu Apr 03, 2008 8:54 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Startled Cat »

yoyo6713 wrote: Fri Apr 02, 2021 8:02 pm I was also worried about credit utilization. They said it won't be reported to credit bureaus. At least not now but they do reserve the right to report.
This is definitely encouraging. Curious if anyone who has drawn from the LOC can confirm how it looks on their credit report.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by Tingting1013 »

Startled Cat wrote: Sun Apr 18, 2021 5:25 pm
yoyo6713 wrote: Fri Apr 02, 2021 8:02 pm I was also worried about credit utilization. They said it won't be reported to credit bureaus. At least not now but they do reserve the right to report.
This is definitely encouraging. Curious if anyone who has drawn from the LOC can confirm how it looks on their credit report.
They also don’t report mortgages to credit beaurus.
stay_the_course
Posts: 62
Joined: Tue Dec 15, 2020 11:13 pm

Re: First Republic line of credit - 100k @ 2.25%, any concerns?

Post by stay_the_course »

Unfortunately (for me), they appear to be extending this line of credit only to US citizens or green-card holders, which makes me ineligible. Oh well...
Post Reply