Author Topic: Pay off HELOC or invest?  (Read 2132 times)

purplish

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Pay off HELOC or invest?
« on: November 08, 2016, 03:49:09 PM »
My HELOC has an interest rate of 3.99%.  I already maxed out my IRA, and I cannot have a 401k.  So, what do you think, put all extra cash into paying off the HELOC or just start a taxable index fund with Vanguard?

onlykelsey

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Re: Pay off HELOC or invest?
« Reply #1 on: November 08, 2016, 03:58:02 PM »
Is your HELOC purchase indebtedness (i.e. do you get to deduct the interest as if it were your mortgage)?  What's your tax bracket?

For me, my HELOC just floated to 5.5%, but because I'm in the 33% federal bracket and it's treated like my mortgage, its effective rate is closer to 3.685%. I've split the difference and send about 80% of my "extra" money to a Vanguard fund, and 20% to my HELOC.

Cwadda

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Re: Pay off HELOC or invest?
« Reply #2 on: November 08, 2016, 04:02:18 PM »
If you can't get a 401(k) then make sure you're getting all the other tax shelter opportunities out of your company.

Don't forget HSA.

I'm in favor of going taxable instead of paying off HELOC.

purplish

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Re: Pay off HELOC or invest?
« Reply #3 on: November 08, 2016, 04:34:33 PM »
Yes the HELOC is tax deductible. 

I only work part-time now (semi-retired), so I don't qualify for any other tax sheltered accounts.  I think.

Mother Fussbudget

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Re: Pay off HELOC or invest?
« Reply #4 on: November 09, 2016, 08:33:16 AM »
General wisdom is:  It depends on the interest rate of the HELOC.  Above 4-or-5%, pay it down.  Within ~2% of the rate of inflation, invest.
Greatly paraphrased.  Search 'mortgage or invest' for other opinions.

frugaliknowit

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Re: Pay off HELOC or invest?
« Reply #5 on: November 09, 2016, 11:24:41 AM »
I would pay the Heloc.  It is variable rate.  I am not a fan of hurdles.  A guaranteed return of 4% for part of your money is nothing to sneeze at.

onlykelsey

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Re: Pay off HELOC or invest?
« Reply #6 on: November 09, 2016, 12:12:54 PM »
If you're in the US, I think last night's results means rates are less likely to rise in the near future.  That is probably "market timing", but I'm definitely taking that in to account in investing now.