Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

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Bdouvs
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Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bdouvs » Fri Oct 11, 2019 9:02 pm

Hi All,

I've been offered a $20k, 18-Month, 0% interest loan w/2% fee from PNC BANK. Should I take the loan and invest or pass on the offer? IT WOULD BORROW AGAINST MY PNC CREDIT CARD WHICH IS NOT MY PRIMARY CARD.

I'd have to make minimum 1% MONTHLY payments and be able to cover the loan at the end of the term in order to avoid interest charges. This is not a problem.

If you were to invest, any suggestions?

I was thinking of VTI or possibly pay off a part of my 3.5%, 20-year mortgage which will save me a year of payments.
Last edited by Bdouvs on Sat Oct 12, 2019 10:29 am, edited 2 times in total.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Tyler Aspect » Fri Oct 11, 2019 9:20 pm

I would not participate in the offer. Borrow money to invest is normally a bad idea.
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by MotoTrojan » Fri Oct 11, 2019 9:23 pm

Barclays card once offered me the equivalent of what you have but only 1% fee, I took it. I’ve also done similar with credit card 0% APR periods. But I always did risk free investments; money market, CD, or most lucrative, bank account bonuses with deposit lockup periods ($10K for 90 days, etc). I would not do this for equity or other risk investments.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by aristotelian » Fri Oct 11, 2019 9:26 pm

I like the idea to use it to pay down the mortgage. I would not leverage debt to invest in stocks with a short timeframe.

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305pelusa
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by 305pelusa » Fri Oct 11, 2019 9:34 pm

Sounds like an excellent idea. Invest it per your IPS (whether that's stocks or mortgage, or whatever else)

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by SovereignInvestor » Fri Oct 11, 2019 9:38 pm

If one wanted to lever stock investments best way is deep ITM call options on SPX. It is implicitly borrowing at risk free rate to buy stock.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by MathIsMyWayr » Fri Oct 11, 2019 9:41 pm

Bdouvs wrote:
Fri Oct 11, 2019 9:02 pm
I've been offered a $20k, 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

I'd have to make minimum 1% payments and be able to cover the loan at the end of the term in order to avoid any additional interest charges. This is not a problem.
Since it is a small amount for you, it is worth taking a chance. It is roughly a 1.33% loan. If the manufacturer offer a 1.33% loan when you buy a car, would you take it? I would.

kxl19
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by kxl19 » Fri Oct 11, 2019 10:13 pm

Can you share more info about the lender? Is it a credit card or bank?

It's a great rate if you can beat the 2% fee. You may be able to deduct the cost of the fee as investment expenses, so depending on your tax bracket, the effective rate may be much lower.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Strayshot » Fri Oct 11, 2019 10:48 pm

And if you pay towards mortgage, where will you get the capital to pay off the loan when it is due in 1.5 years?
I get credit card balance transfer offers like this all the time. If you can find a fixed income investment that pays a roughly equal interest rate you still lose because of taxes. At most you make $200 or so and end up with 100-150 after taxes. Is that really worth the hassle?

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bacchus01 » Sat Oct 12, 2019 4:39 am

I’d take it in a heartbeat.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by JPH » Sat Oct 12, 2019 7:08 am

Wouldn't it be the same as buying a fund with a 2% front load? I would not do that.
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Bdouvs
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bdouvs » Sat Oct 12, 2019 7:11 am

kxl19 wrote:
Fri Oct 11, 2019 10:13 pm
Can you share more info about the lender? Is it a credit card or bank?

It's a great rate if you can beat the 2% fee. You may be able to deduct the cost of the fee as investment expenses, so depending on your tax bracket, the effective rate may be much lower.
Hi, it's from PNC BANK and would be borrowed against a credit card I don't use.

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Bdouvs
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bdouvs » Sat Oct 12, 2019 7:20 am

Strayshot wrote:
Fri Oct 11, 2019 10:48 pm
And if you pay towards mortgage, where will you get the capital to pay off the loan when it is due in 1.5 years?
I get credit card balance transfer offers like this all the time. If you can find a fixed income investment that pays a roughly equal interest rate you still lose because of taxes. At most you make $200 or so and end up with 100-150 after taxes. Is that really worth the hassle?
I agree, I normally ignore these offers because the minimum fee is normally 4-5% and above my mortgage rate. The 2% fee, over 18 months, is much more attractive.

If I used it to pay down my mortgage, I would reserve 1/18 of the loan balance each month with normal cash flow from wages and deposit that amount in a Vanguard Money Market which is earning around 2%. In month 18, I'd pay off the loan to avoid interest.

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Bdouvs
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bdouvs » Sat Oct 12, 2019 7:38 am

aristotelian wrote:
Fri Oct 11, 2019 9:26 pm
I like the idea to use it to pay down the mortgage. I would not leverage debt to invest in stocks with a short timeframe.
What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

aristotelian
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by aristotelian » Sat Oct 12, 2019 7:51 am

Bdouvs wrote:
Sat Oct 12, 2019 7:38 am
aristotelian wrote:
Fri Oct 11, 2019 9:26 pm
I like the idea to use it to pay down the mortgage. I would not leverage debt to invest in stocks with a short timeframe.
What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

Overall, my equity allocation rises and the borrowed money is in a less risky asset.
The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.

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305pelusa
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by 305pelusa » Sat Oct 12, 2019 8:27 am

aristotelian wrote:
Sat Oct 12, 2019 7:51 am
Bdouvs wrote:
Sat Oct 12, 2019 7:38 am
aristotelian wrote:
Fri Oct 11, 2019 9:26 pm
I like the idea to use it to pay down the mortgage. I would not leverage debt to invest in stocks with a short timeframe.
What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

Overall, my equity allocation rises and the borrowed money is in a less risky asset.
The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.

LongRoad
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by LongRoad » Sat Oct 12, 2019 8:45 am

Bdouvs wrote:
Fri Oct 11, 2019 9:02 pm
Hi All,

I've been offered a $20k, 18-Month, 0% interest loan w/2% fee from PNC BANK. Should I take the loan and invest or pass on the offer? IT WOULD BORROW AGAINST MY PNC CREDIT CARD WHICH IS NOT MY PRIMARY CARD.

I'd have to make minimum 1% MONTHLY payments and be able to cover the loan at the end of the term in order to avoid any additional interest charges. This is not a problem.

If you were to invest, any suggestions?

I was thinking of VTI or possibly pay off a part of my 3.5%, 20-year mortgage which will save me a year of payments.
I'd consider using it to pay down the mortgage IF

(1) You have sufficient resources to apply the loan to your mortgage and comfortably make the payments, including the large final payment.
(2) You're sure you can go 18 months without making additional purchases on the card, to avoid paying the APR for purchases during the term.

petulant
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by petulant » Sat Oct 12, 2019 8:50 am

I would not take it. How are you planning to repay it? If you are just going to repay it with interest from an investment, you will either take on serious risk of losing money, or you will earn almost no spread. For example, a 2.25% APY on $20,000 compounded monthly in a CD would earn about $685 over 18 months. To get that, you paid a $400 fee, meaning you net $285. Assuming you can deduct the $400 fee from your taxes on the $685 (not a given), with a 22% marginal rate, the $285 actually turns into $222. So you went through the hassle of getting this set up, running the risk of somebody screwing up, all for $222. Not worth it in my book.

If you ware going to repay it with your earnings or other income, you could just as easily invest those earnings directly and not take on the risk with the loan.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by F150HD » Sat Oct 12, 2019 9:07 am

sounds like gambling to me. If market swings south when that 20k is invested during that 18 months....well, enjoy

aristotelian
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by aristotelian » Sat Oct 12, 2019 9:08 am

305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am
Bdouvs wrote:
Sat Oct 12, 2019 7:38 am
aristotelian wrote:
Fri Oct 11, 2019 9:26 pm
I like the idea to use it to pay down the mortgage. I would not leverage debt to invest in stocks with a short timeframe.
What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

Overall, my equity allocation rises and the borrowed money is in a less risky asset.
The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.

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305pelusa
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by 305pelusa » Sat Oct 12, 2019 9:31 am

aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am
Bdouvs wrote:
Sat Oct 12, 2019 7:38 am
aristotelian wrote:
Fri Oct 11, 2019 9:26 pm
I like the idea to use it to pay down the mortgage. I would not leverage debt to invest in stocks with a short timeframe.
What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

Overall, my equity allocation rises and the borrowed money is in a less risky asset.
The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Lee_WSP » Sat Oct 12, 2019 9:41 am

Bdouvs wrote:
Fri Oct 11, 2019 9:02 pm
Hi All,

I've been offered a $20k, 18-Month, 0% interest loan w/2% fee from PNC BANK. Should I take the loan and invest or pass on the offer? IT WOULD BORROW AGAINST MY PNC CREDIT CARD WHICH IS NOT MY PRIMARY CARD.

I'd have to make minimum 1% MONTHLY payments and be able to cover the loan at the end of the term in order to avoid any additional interest charges. This is not a problem.

If you were to invest, any suggestions?

I was thinking of VTI or possibly pay off a part of my 3.5%, 20-year mortgage which will save me a year of payments.
While lump sum is better than DCA 2/3 of the time, it is not better 1/3 of the time and the odds go down if you're paying interest on the lump sum. Also, you're going to have to pay that back in 18 months, which is a super short time frame. You're better off DCA'ing in this case.

Lee_WSP
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Location: Arizona

Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Lee_WSP » Sat Oct 12, 2019 9:43 am

305pelusa wrote:
Sat Oct 12, 2019 9:31 am
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am
Bdouvs wrote:
Sat Oct 12, 2019 7:38 am


What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

Overall, my equity allocation rises and the borrowed money is in a less risky asset.
The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Worst case happens 1/3 of the time historically, and OP would lose another 2% from the origination fee. But I will agree that mathematically, taking the loan presents a positive expected value. But I disagree that should be the only metric you look at.

MathIsMyWayr
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by MathIsMyWayr » Sat Oct 12, 2019 9:47 am

JPH wrote:
Sat Oct 12, 2019 7:08 am
Wouldn't it be the same as buying a fund with a 2% front load? I would not do that.
If you have a choice between similar funds with a front-load and without, then the choice may be clear. How about 0.5%? Still no. The OP's case is slightly different. A loan with a small fee or no loan.

aristotelian
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by aristotelian » Sat Oct 12, 2019 10:07 am

305pelusa wrote:
Sat Oct 12, 2019 9:31 am
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am
Bdouvs wrote:
Sat Oct 12, 2019 7:38 am


What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

Overall, my equity allocation rises and the borrowed money is in a less risky asset.
The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Why would he be holding bonds now if he wants to take more risk than 100% stock? Theoretically 10x or 100x S&P will pay off most of the time but most Bogleheads hold bonds so as to reduce risk below 100% stock.

Topic Author
Bdouvs
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Joined: Sat Jul 27, 2019 7:04 pm

Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bdouvs » Sat Oct 12, 2019 10:09 am

305pelusa wrote:
Sat Oct 12, 2019 9:31 am
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am
Bdouvs wrote:
Sat Oct 12, 2019 7:38 am


What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

Overall, my equity allocation rises and the borrowed money is in a less risky asset.
The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Yeah, I'd just be reshuffling my allocation to compensate for the $18k. I'd keep the BND in taxable so when the time comes to pay back the balance of the loan, it's available.

I have BND in my IRA, rolled over from previous jobs. This is not in my taxable (only equities at the moment). If I could withdraw from the IRA, penalty and tax free, to pay down my 3.5% mortgage, I'd do it in a heartbeat.

Topic Author
Bdouvs
Posts: 13
Joined: Sat Jul 27, 2019 7:04 pm

Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bdouvs » Sat Oct 12, 2019 10:32 am

305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am
Bdouvs wrote:
Sat Oct 12, 2019 7:38 am
aristotelian wrote:
Fri Oct 11, 2019 9:26 pm
I like the idea to use it to pay down the mortgage. I would not leverage debt to invest in stocks with a short timeframe.
What if in an existing IRA I sold $18k in bonds (BND),
and bought the same amount in equities (VTI)

In my taxable account I'd purchase $18k in BND using the loan. In month 18, I can sell BND to pay off the balance.

Overall, my equity allocation rises and the borrowed money is in a less risky asset.
The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Hi, I keep a 15% allocation to bonds. The BND is in a Traditional IRA. I'm 38, penalty & tax if withdrawn. I'd love to use it for the mortgage if I could.

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305pelusa
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by 305pelusa » Sat Oct 12, 2019 10:33 am

Lee_WSP wrote:
Sat Oct 12, 2019 9:43 am
[quote=305pelusa post_id=4790217 time=1570890674 user_id=141859]
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am


The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Worst case happens 1/3 of the time historically, and OP would lose another 2% from the origination fee. But I will agree that mathematically, taking the loan presents a positive expected value. But I disagree that should be the only metric you look at.
[/quote]

I know what figure you're quoting here and that's for stocks. We're talking about bonds since BND is how OP would pay back. I bolded that section in the post you quoted of mine above.
BND has far less volatility than stocks so it is far more unlikely that 18 months would pass and BND is decimated enough that OP runs into trouble.
Bdouvs wrote:
Sat Oct 12, 2019 10:09 am
305pelusa wrote:
Sat Oct 12, 2019 9:31 am
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am


The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Yeah, I'd just be reshuffling my allocation to compensate for the $18k. I'd keep the BND in taxable so when the time comes to pay back the balance of the loan, it's available.

I have BND in my IRA, rolled over from previous jobs. This is not in my taxable (only equities at the moment). If I could withdraw from the IRA, penalty and tax free, to pay down my 3.5% mortgage, I'd do it in a heartbeat.
But you already know how to deal with that 0_o. Sell the BND in IRA, buy stocks in IRA with that money and sell stocks in taxable to pay down mortgage.
Again, this is independent of the loan question.
aristotelian wrote:
Sat Oct 12, 2019 10:07 am
305pelusa wrote:
Sat Oct 12, 2019 9:31 am
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am


The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Why would he be holding bonds now if he wants to take more risk than 100% stock? Theoretically 10x or 100x S&P will pay off most of the time but most Bogleheads hold bonds so as to reduce risk below 100% stock.
Don't assume that OP does things for the reasons you think he does. He just confirmed that if he could sell his BND to pay down the mortgage, he would. And I think he can.

Also 10x S&P500 does not have a positive return. Certainly not 100x. Theoretically or otherwise.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by shess » Sat Oct 12, 2019 10:56 am

Bdouvs wrote:
Fri Oct 11, 2019 9:02 pm
I've been offered a $20k, 18-Month, 0% interest loan w/2% fee from PNC BANK. Should I take the loan and invest or pass on the offer? IT WOULD BORROW AGAINST MY PNC CREDIT CARD WHICH IS NOT MY PRIMARY CARD.

I'd have to make minimum 1% MONTHLY payments and be able to cover the loan at the end of the term in order to avoid interest charges. This is not a problem.
Personally, I'd check _really_ thoroughly for potholes. I feel like banks these days have gotten really good at sending you a plausible sounding package with an embedded stinger.

When you say "NOT MY PRIMARY CARD", do you mean that you don't use it AT ALL? Because one of the common stingers on credit-card offers is that all new spending accumulates behind the pay-off of the 0% bucket.

All of that said, I do kind of wish I had taken the 0% financing when I bought my vehicle. Apparently lack of installment payments is reducing my credit score. I don't know why I need better credit, since I'm not in the market for a loan, but setting up autopay on a 0% loan would have been a cheap thing for me. But I'm not going to go search for credit to achieve this.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bdouvs » Sat Oct 12, 2019 11:00 am

shess wrote:
Sat Oct 12, 2019 10:56 am
Bdouvs wrote:
Fri Oct 11, 2019 9:02 pm
I've been offered a $20k, 18-Month, 0% interest loan w/2% fee from PNC BANK. Should I take the loan and invest or pass on the offer? IT WOULD BORROW AGAINST MY PNC CREDIT CARD WHICH IS NOT MY PRIMARY CARD.

I'd have to make minimum 1% MONTHLY payments and be able to cover the loan at the end of the term in order to avoid interest charges. This is not a problem.
Personally, I'd check _really_ thoroughly for potholes. I feel like banks these days have gotten really good at sending you a plausible sounding package with an embedded stinger.

When you say "NOT MY PRIMARY CARD", do you mean that you don't use it AT ALL? Because one of the common stingers on credit-card offers is that all new spending accumulates behind the pay-off of the 0% bucket.

All of that said, I do kind of wish I had taken the 0% financing when I bought my vehicle. Apparently lack of installment payments is reducing my credit score. I don't know why I need better credit, since I'm not in the market for a loan, but setting up autopay on a 0% loan would have been a cheap thing for me. But I'm not going to go search for credit to achieve this.
I don't use it AT ALL. I'll have no issues mistakenly using.

I'm not sure how many cards you have but I have 6. I really only use 3 of them depending on rewards offered. On 1 I only have Netflix on the other I only have my auto reload for Dunkin/Sbux. The 6th, is the one that's offering the loan.

Just those small amounts on each card has increased my credit score dramatically. I guess the bureaus don't like seeing inactive accounts.
Last edited by Bdouvs on Sat Oct 12, 2019 11:04 am, edited 1 time in total.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by mighty72 » Sat Oct 12, 2019 11:03 am

I would take the loan if and only if
1. I don't use the card at all
2. I was planning to save and invest the loan amount over the period of loan

First, condition ensures that I don't end up paying interest on purchased
The second condition means that I am just investing early

Overall, it is a bit of a gamble and market timing. If stocks continue to go up, you win
If stocks go down and their value at the end of the loan term is less than what you bought it for, you lose

Based on the last statement, I will not take the money

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Tyler Aspect » Sat Oct 12, 2019 11:54 am

The bank can misplace one of your payments, then you lose.
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by afan » Sat Oct 12, 2019 1:20 pm

I probably would not do it but using it to pay down the mortgage is not a bad idea. OP says there will be no problem paying off the loan, so no risk. The loan rate is substantially less than the mortgage rate, so there would be a profit. It would be worth several hundred dollars, less if the mortgage interest is deducted. Since it is an existing account there should be no need to unfreeze credit reports of make a new application.

If it is a small amount of money for the OP, then using it to buy stock increases risk but then pay off the loan and either hold the stock long term or sell and deduct the loss. My only concern would be if the OP would not otherwise have the cash to put in VTI.
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by grabiner » Sat Oct 12, 2019 6:52 pm

Bdouvs wrote:
Fri Oct 11, 2019 9:02 pm
Hi All,

I've been offered a $20k, 18-Month, 0% interest loan w/2% fee from PNC BANK. Should I take the loan and invest or pass on the offer? IT WOULD BORROW AGAINST MY PNC CREDIT CARD WHICH IS NOT MY PRIMARY CARD.

I'd have to make minimum 1% MONTHLY payments and be able to cover the loan at the end of the term in order to avoid interest charges. This is not a problem.
So this makes the effective loan rate about 1.4% (since you pay 2% to borrow money, and keep most of the borrowed money for 18 months).

That is just barely better than the risk-free return. Say you put the money in an 18-month CD, which yields about 2%. That would be a 1.52% return after tax in a 24% bracket, so the 0.12% difference is a net gain of $36. The loss if something goes wrong is enough that I don't think it is worth doing.
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by whodidntante » Sat Oct 12, 2019 7:30 pm

Maxing a single tradeline can cause your score to take a dive for vantagescore. So I would take at most around 6k. And I would take it. Invest it in the way you find most appealing. It's 6k, doesn't really matter much.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Lee_WSP » Sat Oct 12, 2019 7:34 pm

305pelusa wrote:
Sat Oct 12, 2019 10:33 am
Lee_WSP wrote:
Sat Oct 12, 2019 9:43 am
[quote=305pelusa post_id=4790217 time=1570890674 user_id=141859]
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am
aristotelian wrote:
Sat Oct 12, 2019 7:51 am


The return on BND would not be worth the hassle to me. Lump sum on the mortgage seems like a better arbitrage opportunity.
You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Worst case happens 1/3 of the time historically, and OP would lose another 2% from the origination fee. But I will agree that mathematically, taking the loan presents a positive expected value. But I disagree that should be the only metric you look at.
I know what figure you're quoting here and that's for stocks. We're talking about bonds since BND is how OP would pay back. I bolded that section in the post you quoted of mine above.
BND has far less volatility than stocks so it is far more unlikely that 18 months would pass and BND is decimated enough that OP runs into trouble.
Bdouvs wrote:
Sat Oct 12, 2019 10:09 am
305pelusa wrote:
Sat Oct 12, 2019 9:31 am
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am


You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Yeah, I'd just be reshuffling my allocation to compensate for the $18k. I'd keep the BND in taxable so when the time comes to pay back the balance of the loan, it's available.

I have BND in my IRA, rolled over from previous jobs. This is not in my taxable (only equities at the moment). If I could withdraw from the IRA, penalty and tax free, to pay down my 3.5% mortgage, I'd do it in a heartbeat.
But you already know how to deal with that 0_o. Sell the BND in IRA, buy stocks in IRA with that money and sell stocks in taxable to pay down mortgage.
Again, this is independent of the loan question.
aristotelian wrote:
Sat Oct 12, 2019 10:07 am
305pelusa wrote:
Sat Oct 12, 2019 9:31 am
aristotelian wrote:
Sat Oct 12, 2019 9:08 am
305pelusa wrote:
Sat Oct 12, 2019 8:27 am


You missed the point. The 18k in effect went into more VTI, where the return will be worthwhile.

A bigger question is "why have any BND that yields 2.1% right now when you have a mortgage at 3.5%?". But that's unrelated to your post haha.
Doh. Yeah, I already said I would not leverage debt to invest in stocks with a short timeframe. He could just as easily reduce his bond allocation.
I guess his point is that he can use the loan to invest more in VTI (a yield that would be "worthwhile" in your mind) while shuffling his taxable such that he has 18k in BND ready to pay down that debt.
20k is not even that much. Worst comes to shove, rates go up, BND goes down, and OP must also sell some other holdings to pay back. Yes, it's not a free lunch and free money necessarily. But the odds are stacked in his favor. And isn't that what investing and taking on risk is all about?
Why would he be holding bonds now if he wants to take more risk than 100% stock? Theoretically 10x or 100x S&P will pay off most of the time but most Bogleheads hold bonds so as to reduce risk below 100% stock.
Don't assume that OP does things for the reasons you think he does. He just confirmed that if he could sell his BND to pay down the mortgage, he would. And I think he can.

Also 10x S&P500 does not have a positive return. Certainly not 100x. Theoretically or otherwise.
[/quote]

So he wants to go through all that trouble for .25% APY on 20k? Ie, ~$330

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Cubicle » Sat Oct 12, 2019 10:35 pm

If I took the loan (still undecided), I would not invest it in equities. Risk of a market downturn & incomplete recovery with 18 months too high for me. It it was a longer term loan, I'd be less against it.

Paying off any higher interest debt would be my only destinations for the money.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by sergeant » Sat Oct 12, 2019 10:40 pm

No meat on the bones or more plainly seems like way too much bother for very little reward. I wouldn't do it.
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by shess » Mon Oct 14, 2019 1:46 am

Cubicle wrote:
Sat Oct 12, 2019 10:35 pm
If I took the loan (still undecided), I would not invest it in equities. Risk of a market downturn & incomplete recovery with 18 months too high for me. It it was a longer term loan, I'd be less against it.

Paying off any higher interest debt would be my only destinations for the money.
In your original post, you said that you'd have no problems paying off the loan and servicing it. Why aren't you putting those resources towards the mortgage in the first place, before the loan offer was even made? Maybe answering that question would give an angle on the overall question of whether to take the loan.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by firebirdparts » Mon Oct 14, 2019 8:04 am

JPH wrote:
Sat Oct 12, 2019 7:08 am
Wouldn't it be the same as buying a fund with a 2% front load? I would not do that.
When you say "fund" you have to think about what kind of fund you'd be willing to buy for just 18 month. With that tiny duration, it has to be a totally safe investment. Then you end up with a sure-fire $100 or some such.

I can't criticize this, as my wife is entertaining herself by moving a deposit from bank to bank where they promise to give you something for a deposit left for a certain number of days.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Bdouvs » Mon Oct 14, 2019 8:10 am

Hi Everyone,

My wife and I, (mostly my wife) decided we should use the cash to prepay the mortgage and have the guaranteed return. Over 20 years (loan term) it'll shave off a year of payments and about $17k in interest.

Thanks for the comments/advice

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by sergeant » Mon Oct 14, 2019 2:48 pm

Bdouvs wrote:
Mon Oct 14, 2019 8:10 am
Hi Everyone,

My wife and I, (mostly my wife) decided we should use the cash to prepay the mortgage and have the guaranteed return. Over 20 years (loan term) it'll shave off a year of payments and about $17k in interest.

Thanks for the comments/advice
Please show the math on your 17k interest savings. I can't figure it out. I'm seeing you guys netting about 200 bucks.
Lincoln 3 EOW!

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by JBTX » Mon Oct 14, 2019 3:08 pm

Bdouvs wrote:
Mon Oct 14, 2019 8:10 am
Hi Everyone,

My wife and I, (mostly my wife) decided we should use the cash to prepay the mortgage and have the guaranteed return. Over 20 years (loan term) it'll shave off a year of payments and about $17k in interest.

Thanks for the comments/advice
So where does the money come from to pay it back in 18 months.

Seems to me you have to match risks to really evaluate. You could get 2% rate from a bank, or 3% over 18 months. So you net 1%, of $200, on a "risk free" basis. Not worth my time. Plus consumer loans scare the heck out of me. Typically (or often?) if you happen to miss a payment, or repayment date, it reverts retroactively to consumer credit rates in the high teens. Then I'm worried 18 months about missing that payment.

Paying off mortgage is not an apples and oranges comparison. What if you lost your job? Now you have to liquidate something or borrow elsewhere to pay off the $20k.

If I could net $1000 on a net risk free basis I'd do it. But not for $200.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by petulant » Mon Oct 14, 2019 3:40 pm

Bdouvs wrote:
Mon Oct 14, 2019 8:10 am
Hi Everyone,

My wife and I, (mostly my wife) decided we should use the cash to prepay the mortgage and have the guaranteed return. Over 20 years (loan term) it'll shave off a year of payments and about $17k in interest.

Thanks for the comments/advice
You are incorrect. You will have to pay off the loan with your other income. The other income could have been used to pay down the mortgage directly. You only make the difference between avoided interest making payments directly compared to the accelerated avoidance from the loan less the 2% fee. Using a simplistic figure of $10,000 prepaid on average over the next 18 months, you might save around $525 by adding $20,000 in equal installments over the next 18 months. Or, you save $1050 by prepaying $20000 now and paying off over the next 18 months. However, you pay a 2% fee of $400, meaning you have netted $650. That is only $125 more than simply prepaying the mortgage, and it doesn't even include a full tax work-up. You also lost flexibility in case you had an emergency in a year or so. This was a waste of your time.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by 305pelusa » Mon Oct 14, 2019 4:02 pm

Bdouvs wrote:
Mon Oct 14, 2019 8:10 am
Hi Everyone,

My wife and I, (mostly my wife) decided we should use the cash to prepay the mortgage and have the guaranteed return. Over 20 years (loan term) it'll shave off a year of payments and about $17k in interest.

Thanks for the comments/advice
I'm calculating a profit of around 585 post tax.

Assuming a 25% tax bracket, you'd need to earn 780 bucks to make that. Depending on your hourly pay, that might be 2+ days of work.

I would GLADLY skip work for 2 days if all it took was to do what you've done. Which probably took less than an hour to set up. I think it's a very low risk, solid decision.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by sergeant » Mon Oct 14, 2019 4:40 pm

petulant wrote:
Mon Oct 14, 2019 3:40 pm
Bdouvs wrote:
Mon Oct 14, 2019 8:10 am
Hi Everyone,

My wife and I, (mostly my wife) decided we should use the cash to prepay the mortgage and have the guaranteed return. Over 20 years (loan term) it'll shave off a year of payments and about $17k in interest.

Thanks for the comments/advice
You are incorrect. You will have to pay off the loan with your other income. The other income could have been used to pay down the mortgage directly. You only make the difference between avoided interest making payments directly compared to the accelerated avoidance from the loan less the 2% fee. Using a simplistic figure of $10,000 prepaid on average over the next 18 months, you might save around $525 by adding $20,000 in equal installments over the next 18 months. Or, you save $1050 by prepaying $20000 now and paying off over the next 18 months. However, you pay a 2% fee of $400, meaning you have netted $650. That is only $125 more than simply prepaying the mortgage, and it doesn't even include a full tax work-up. You also lost flexibility in case you had an emergency in a year or so. This was a waste of your time.
My back of the envelope (actually done in my head) numbers are about the same. Thanks for showing your work.
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Raraculus » Mon Oct 14, 2019 4:46 pm

SovereignInvestor wrote:
Fri Oct 11, 2019 9:38 pm
If one wanted to lever stock investments best way is deep ITM call options on SPX. It is implicitly borrowing at risk free rate to buy stock.
I like the way you think. I recently looked into this, and it appears that SPX call options do not pay dividends. So, it'll be a no from me.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by grabiner » Mon Oct 14, 2019 5:12 pm

Raraculus wrote:
Mon Oct 14, 2019 4:46 pm
SovereignInvestor wrote:
Fri Oct 11, 2019 9:38 pm
If one wanted to lever stock investments best way is deep ITM call options on SPX. It is implicitly borrowing at risk free rate to buy stock.
I like the way you think. I recently looked into this, and it appears that SPX call options do not pay dividends. So, it'll be a no from me.
Option traders know that the option will not pay dividends, while the underlying index or stock will, and they set the price accordingly when trading. Thus you do not lose the value of the dividend. (If this didn't work, there would be a free lunch, as traders could write a deep-in-the-money option, buy the stock, and get a guaranteed profit from the dividends.)
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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Raraculus » Mon Oct 14, 2019 6:55 pm

grabiner wrote:
Mon Oct 14, 2019 5:12 pm
Raraculus wrote:
Mon Oct 14, 2019 4:46 pm
SovereignInvestor wrote:
Fri Oct 11, 2019 9:38 pm
If one wanted to lever stock investments best way is deep ITM call options on SPX. It is implicitly borrowing at risk free rate to buy stock.
I like the way you think. I recently looked into this, and it appears that SPX call options do not pay dividends. So, it'll be a no from me.
Option traders know that the option will not pay dividends, while the underlying index or stock will, and they set the price accordingly when trading. Thus you do not lose the value of the dividend. (If this didn't work, there would be a free lunch, as traders could write a deep-in-the-money option, buy the stock, and get a guaranteed profit from the dividends.)
That makes sense. Thank you for the explanation.

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Re: Offered 18-Month, 0% interest loan w/2% fee. Should I take the loan and invest or pass on the offer?

Post by Lee_WSP » Tue Oct 15, 2019 8:59 am

305pelusa wrote:
Mon Oct 14, 2019 4:02 pm
Bdouvs wrote:
Mon Oct 14, 2019 8:10 am
Hi Everyone,

My wife and I, (mostly my wife) decided we should use the cash to prepay the mortgage and have the guaranteed return. Over 20 years (loan term) it'll shave off a year of payments and about $17k in interest.

Thanks for the comments/advice
I'm calculating a profit of around 585 post tax.

Assuming a 25% tax bracket, you'd need to earn 780 bucks to make that. Depending on your hourly pay, that might be 2+ days of work.

I would GLADLY skip work for 2 days if all it took was to do what you've done. Which probably took less than an hour to set up. I think it's a very low risk, solid decision.
But since mortgages are so front loaded, are you really making $585? Because that payoff is not happening until 20-29 years down the road. If the mortgage is almost paid off, then you aren't netting that much either because you're not reducing the interest payments at all.

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