Pay down variable-rate HELOC as I enter FIRE?

[RedmondStash]

I have two angels/devils on my shoulders:

Angel/devil 1: Don't pay down the HELOC. You took it out a year and a half ago to reduce the part of your net worth that's in stagnant, unproductive home equity. Its variable interest rate is currently 3.86%. So just be cool, make the normal monthly payments, and leave it alone. Home equity still accounts for 25% of your total net worth, and right now, with the stock market's current bull run, that HELOC has made substantial profits for you. You're probably selling this house in the next 5 years anyway, and you can pay off the HELOC in full then.

Angel/devil 2: Pay down the HELOC. You're FIRE-ing next week. You know the HELOC's interest rate is likely to increase over time. You might as well take some of those stock market profits and pay that sucker down or even off. Being debt-free is good. And -- right now, the market is high and the interest rate is low, but if the market corrects and the interest rate soars, you'll be in a bad position to pay it down then. You don't know what the future holds, and a 3.86%, untaxed, guaranteed return is not terrible. Plus, because it's a HELOC, paying down the principal immediately lowers your monthly payments.

Who do I listen to? Do I stay the course? Or do I take some guaranteed profits and reduce debt now?

I realize this is an age-old debate on this forum, but my specific case is a bit different than most because of the variable interest rate and the immediacy of FIRE. Converting to a fixed interest rate would kick it up substantially, probably to close to 5%.

Thanks.

[Dicey]

I have two angels/devils on my shoulders:

Angel/devil 1: Don't pay down the HELOC. You took it out a year and a half ago to reduce the part of your net worth that's in stagnant, unproductive home equity. Its variable interest rate is currently 3.86%. So just be cool, make the normal monthly payments, and leave it alone. Home equity still accounts for 25% of your total net worth, and right now, with the stock market's current bull run, that HELOC has made substantial profits for you. You're probably selling this house in the next 5 years anyway, and you can pay off the HELOC in full then.

Angel/devil 2: Pay down the HELOC. You're FIRE-ing next week. You know the HELOC's interest rate is likely to increase over time. You might as well take some of those stock market profits and pay that sucker down or even off. Being debt-free is good. And -- right now, the market is high and the interest rate is low, but if the market corrects and the interest rate soars, you'll be in a bad position to pay it down then. You don't know what the future holds, and a 3.86%, untaxed, guaranteed return is not terrible. Plus, because it's a HELOC, paying down the principal immediately lowers your monthly payments.

Who do I listen to? Do I stay the course? Or do I take some guaranteed profits and reduce debt now?

I realize this is an age-old debate on this forum, but my specific case is a bit different than most because of the variable interest rate and the immediacy of FIRE. Converting to a fixed interest rate would kick it up substantially, probably to close to 5%.

Thanks.

Uh, wait a couple more weeks to pull the job trigger.  Refi your house to a fixed rate, low interest mortgage, even if it is a bit higher than the heloc rate. Then take your sweet-ass time paying it off, while the original heloc soldiers continue to toil in the equities division. Then go out and play for the rest of your life.

[RedmondStash]

I have two angels/devils on my shoulders:

Angel/devil 1: Don't pay down the HELOC. You took it out a year and a half ago to reduce the part of your net worth that's in stagnant, unproductive home equity. Its variable interest rate is currently 3.86%. So just be cool, make the normal monthly payments, and leave it alone. Home equity still accounts for 25% of your total net worth, and right now, with the stock market's current bull run, that HELOC has made substantial profits for you. You're probably selling this house in the next 5 years anyway, and you can pay off the HELOC in full then.

Angel/devil 2: Pay down the HELOC. You're FIRE-ing next week. You know the HELOC's interest rate is likely to increase over time. You might as well take some of those stock market profits and pay that sucker down or even off. Being debt-free is good. And -- right now, the market is high and the interest rate is low, but if the market corrects and the interest rate soars, you'll be in a bad position to pay it down then. You don't know what the future holds, and a 3.86%, untaxed, guaranteed return is not terrible. Plus, because it's a HELOC, paying down the principal immediately lowers your monthly payments.

Who do I listen to? Do I stay the course? Or do I take some guaranteed profits and reduce debt now?

I realize this is an age-old debate on this forum, but my specific case is a bit different than most because of the variable interest rate and the immediacy of FIRE. Converting to a fixed interest rate would kick it up substantially, probably to close to 5%.

Thanks.

Uh, wait a couple more weeks to pull the job trigger.  Refi your house to a fixed rate, low interest mortgage, even if it is a bit higher than the heloc rate. Then take your sweet-ass time paying it off, while the original heloc soldiers continue to toil in the equities division. Then go out and play for the rest of your life.

Thanks. Any recommendations for a good place to get a low fixed-rate mortgage?

[Dicey]

^^They're everywhere, man! You can use your own bank or CU, any other local lender, an onlline mortgage provider, or even a mortgage broker*. Where did you get your HELOC? Start there. Also, PenFed FCU often gets raves for good rates. But I have no personal experience with them. I recently recommended them to my sister and she used their rates as leverage with a local lender, who matched the rate.

Our newspaper lists the best mortgage rate providers once a week in the Ream Estate section, which is also available on line.

There's no way a mustachian ready to FIRE should have to pay 5%, assuming you're US based.

*I have bought and refinanced many properties. Often a good mortgage broker, typically one recommended by my awesome realtor, gets me the best rate. Next best is a local bank that maintains their own portfolio.

[RedmondStash]

Thanks, Dicey. I can see why you recommend postponing FIRE by a couple of weeks, but unfortunately, I gave notice a couple of weeks ago, and 12/1 is my last day. And I'm not moving it back because things at work got pretty awful in the last month.

I probably should have done this a couple of months ago. Live and learn. :) But I may ping Bank of America, where our HELOC currently is, and just see what they can offer in terms of fixed-rate conversion.

[HawkeyeNFO]

3.86% eh?  I wouldn't pay that off.  What's the rush?  Even if you have the cash on hand, I would invest it in equities instead.  If the rate goes up to 5% or something like that, you could always pay it off later. 

First thing to do is see if it makes sense to refi the mortgage.  PenFed was good to me several years ago, but now their reviews are not so good.  I'd start with a mortgage broker, and compare their deals to the banks.

Obviously, my personality is such that I take risks based on the math and logic.  I sleep just fine.  Many other people won't do that, and would prefer to pay off all debt, regardless of the the math.

[HawkeyeNFO]

Congrats on FIREing!  What's your age?