Author Topic: Using Mortgage to "Store" Funds with HELOC  (Read 1049 times)

LaurenR

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Using Mortgage to "Store" Funds with HELOC
« on: November 17, 2017, 01:51:19 PM »
I'm sitting on $100k from a recent house sale, but am reluctant to throw it into the market (face punch deserved for market timing).

I was thinking - I have my primary house mortgaged (3.75%), so maybe I could put that $100k into my mortgage and then obtain a 10-yr draw HELOC ($50 closing costs and probably the same ~3.75% interest rate).  This gives me a 3.75% "return" annually (from the reduction in mortgage interest) until I withdraw the funds to invest once the market corrects 10% or more. 

The major caveat I can think of is that the bank could close my HELOC at anytime and I wouldn't have that money available anymore.  Probably unlikely to happen though, am I right?  My credit is excellent and the house is only worth $300k, don't seeing the value ever crashing too terribly for that price point.

What other downsides am I not considering?  Besides that the bull run could last for years longer?

elysianfields

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Re: Using Mortgage to "Store" Funds with HELOC
« Reply #1 on: November 18, 2017, 06:07:10 AM »
I'm sitting on $100k from a recent house sale, but am reluctant to throw it into the market (face punch deserved for market timing).

As the LT stock market trend is upward, you stand to make more money investing it all at once.  If you don't want to do that, you can always dollar-cost average your way into the market.

I was thinking - I have my primary house mortgaged (3.75%), so maybe I could put that $100k into my mortgage and then obtain a 10-yr draw HELOC ($50 closing costs and probably the same ~3.75% interest rate).  This gives me a 3.75% "return" annually (from the reduction in mortgage interest) until I withdraw the funds to invest once the market corrects 10% or more.

Using the $100k to pay down your mortgage assures you a 3.75% return on that investment.

What if you pay down your mortgage and the bank refuses the HELOC, or approves it only for a smaller amount?  It would serve you to know the target bank's LTV limits.

Alternatively, invest the money in the market and apply for a HELOC anyway.  Use the $100k balance of your investment as an input into your bank's credit decision on the HELOC.

You may be able to obtain a 3.75% variable rate on your HELOC if you occupy the house serving as collateral; many banks are offering Prime - 0.5% or Prime - 0.75%.  TDBank and some credit unions come to mind.