How do y'all feel about interest only HELOCs

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SaucedUp
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How do y'all feel about interest only HELOCs

Post by SaucedUp »

So I refinanced my house mid pandemic to take advantage of lower interest rates, also as an opportunity to increase my cash flow.

Bought the house Feb 2019 for 192 with 180 in a traditional 30 year. After the 1 year was up I had it reappraised for refi and they valued it at 242 and gave me a 2.71% on a 5yr interest only HELOC.

Now I really don't care about the equity in the house, it's unlikely I'll use it. I decided to go with a HELOC specifically because I could make it interest only. I took the cash I would have been paying towards principal and I invest that money. At the end of the year I take the money I would have paid in principal and interest and make a lump sum payment.

My idea is that all I have to do is beat what I would have been paying in principal and I'm "winning" and it's going to be exponential over time.

I see 3 main risks but want to get more thoughts

1) The investments don't beat whatever the interest cost would have been - I'm willing to take my chances here.

2) There is an emergency where I have to pull all of my money out of investments and can't make the lump sum principal payment, setting myself back

3) Interest rates will go up over time and doing a new HELOC every 5 years will be negatively impacted by interest rates going up.
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Re: How do y'all feel about interest only HELOCs

Post by KlangFool »

OP,

If you and your spouse are unemployed in the coming recession and both the stock market and housing market crashes 50%, how long can you last?

You have to survive in order to succeed.

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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

I have liquid assets worth 2-3 years worth of living expenses. I also have an in demand skill in a high paying industry so I'm not worried about losing my job.
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galawdawg
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Re: How do y'all feel about interest only HELOCs

Post by galawdawg »

Welcome to Bogleheads!

Bad idea. That's how I feel, can't speak for everyone else here.

But if you want to use your home equity to "take your chances" with your options trading and swing trading1 to see if you keep "winning" then the decision to gamble with your financial future is certainly yours to make. Too much gambling flavor for my tastes.

Hope it works out for you. And I'm sure it will. Until it doesn't...

Best of "luck"! :happy



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runner3081
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Re: How do y'all feel about interest only HELOCs

Post by runner3081 »

The marginal gain this would bring, to me, is nowhere near the risk.
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samsoes
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Re: How do y'all feel about interest only HELOCs

Post by samsoes »

galawdawg wrote: Mon Jul 26, 2021 3:02 pm
But if you want to use your home equity to "take your chances" with your options trading and swing trading1 to see if you keep "winning" then the decision to gamble with your financial future is certainly yours to make. Too much gambling flavor for my tastes.
1viewtopic.php?p=6140562#p6140562
What the heck is swing trading? I worked in two stock markets most of my career and I never heard of such a thing, at least nothing that was called by that name.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

galawdawg wrote: Mon Jul 26, 2021 3:02 pm Welcome to Bogleheads!

Bad idea. That's how I feel, can't speak for everyone else here.

But if you want to use your home equity to "take your chances" with your options trading and swing trading1 to see if you keep "winning" then the decision to gamble with your financial future is certainly yours to make. Too much gambling flavor for my tastes.

Hope it works out for you. And I'm sure it will. Until it doesn't...

Best of "luck"! :happy



1viewtopic.php?p=6140562#p6140562
But I’m not using the equity in my house? The amount I would have paid gets made as a lump sum payment at the end of the year regardless of the performance of the portfolio.

If I lose 10% with whatever that years of payments would have been I have to eat the cost.

Let’s pretend that money was invested in a “safe” index fund or something that made a modest return rather than being “gambled”, would it change your mind?
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

samsoes wrote: Mon Jul 26, 2021 3:20 pm
galawdawg wrote: Mon Jul 26, 2021 3:02 pm
But if you want to use your home equity to "take your chances" with your options trading and swing trading1 to see if you keep "winning" then the decision to gamble with your financial future is certainly yours to make. Too much gambling flavor for my tastes.
1viewtopic.php?p=6140562#p6140562
What the heck is swing trading? I worked in two stock markets most of my career and I never heard of such a thing, at least nothing that was called by that name.
Momentum trading
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Re: How do y'all feel about interest only HELOCs

Post by KlangFool »

SaucedUp wrote: Mon Jul 26, 2021 2:44 pm I have liquid assets worth 2-3 years worth of living expenses. I also have an in demand skill in a high paying industry so I'm not worried about losing my job.
SaucedUp,

1) Does your liquid asset worth 2 to 3 years if we are in a global recession?

<< I also have an in demand skill in a high paying industry >>

2) If the whole industry goes to hell, what then?

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Re: How do y'all feel about interest only HELOCs

Post by KlangFool »

OP,

1) How much money are we talking about here? 100K? 200K?

2) How much do you think you can make from this? 10K per year? 20K per year?

3) What is your portfolio size?

4) What is your annual saving?

5) Why do you think that you can make enough from this gambling to matter?

6) What are the numbers?

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jarjarM
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Re: How do y'all feel about interest only HELOCs

Post by jarjarM »

SaucedUp wrote: Mon Jul 26, 2021 3:22 pm
Momentum trading
As a fellow momentum trader, I think it's a bit risky. Since we're basically picking pennies in front of the steam roller and when things go the wrong way, we could be down quite a bit. So better have a healthy war chest if this is the way you want to go. Just my 2 cents.

Edited to add: If this is a small portion of your overall portfolio (like <5%) then it's just play money, I see little harm in that.
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Re: How do y'all feel about interest only HELOCs

Post by jmw »

I'm sure you are not seeing the very, very high risk of this very foolish idea.

Can you pay double the interest at 5.5% which will double your minimum payment for interest only? I can't see rates ever tripling to 8% but that would crush you if it happened.

Can you pay the fully amortized cost on a 20 year schedule or 10 year schedule or whatever it is? The fully amortized payment using a 20 year schedule will be more than double the current interest only payment if interest rates don't rise at all. You cannot draw anymore funds once you start full amortization on a HELOC to fund the minimum payment. It has to be principal + interest out of your wallet and not the bank.

If you are unemployed, can you still make double or triple or quadruple the minimum payment?

I assume you are not old enough to get a reverse mortgage, which would get rid of the minimum payment risk.

I consider this type of play equivalent to casino gambling. I would never call this idea an investment.
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Re: How do y'all feel about interest only HELOCs

Post by samsoes »

SaucedUp wrote: Mon Jul 26, 2021 3:22 pm
samsoes wrote: Mon Jul 26, 2021 3:20 pm
galawdawg wrote: Mon Jul 26, 2021 3:02 pm
But if you want to use your home equity to "take your chances" with your options trading and swing trading1 to see if you keep "winning" then the decision to gamble with your financial future is certainly yours to make. Too much gambling flavor for my tastes.
1viewtopic.php?p=6140562#p6140562
What the heck is swing trading? I worked in two stock markets most of my career and I never heard of such a thing, at least nothing that was called by that name.
Momentum trading
Ah, ok.
Never works, especially competing against algorithmic trading. Like standing with your fishing pole in the middle of a river of piranhas.
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Re: How do y'all feel about interest only HELOCs

Post by HomerJ »

SaucedUp wrote: Mon Jul 26, 2021 2:44 pm I have liquid assets worth 2-3 years worth of living expenses.
Are those liquid assets paying more than 2.71% with no chance of crashing?

If not, seems pretty dumb to pay 2.71% interest on that loan while you have liquid assets sitting there paying less.

If they are paying more, than I'm guessing there is a chance that money could drop in a crash, so you're not actually protected with 2-3 years of expenses.
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Re: How do y'all feel about interest only HELOCs

Post by HomerJ »

SaucedUp wrote: Mon Jul 26, 2021 2:44 pm I also have an in demand skill in a high paying industry so I'm not worried about losing my job.
If this is true, why do you need to gamble with borrowed money?

If you are good at gambling, you should be able to make a pile of money using your actual savings.

Are you bad at gambling? Why don't you have actual savings to gamble with instead of borrowed money where you pay interest?
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: How do y'all feel about interest only HELOCs

Post by invest4 »

Strongly support the refinance @30 years which provides an inflation hedge and diversification.

However, borrowing additional money via the HELOC in the hopes of "squeezing more juice" isn't worth it in my opinion.

To each their own...best of luck.
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Re: How do y'all feel about interest only HELOCs

Post by calwatch »

I had paid off my mortgage early last year, pre COVID, but due to falling financial conditions and the potential of the bank shutting down the HELOC like some banks did in the last financial crisis I fully drafted the HELOC in April and put it in intermediate term corporate bonds taking advantage of the implied Fed guarantee. Over time as I've gotten more confident with my job situation and the COVID recovery, I've moved those bonds over to broad market ETFs. I have enough in I Bonds and other medium risk investments to extinguish about 2/3 of the HELOC if I had to, though, and could rework my asset ratio out of the balanced fund in my 457 and sell stocks to pay off the rest if needed. The HELOC is at 2.24% and so the I Bonds well exceed that.
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

Seems like people are confused here.

I haven't borrowed any money against my house to invest. Rather than paying principal and interest each month, I only pay interest and the money that would have paid principal gets invested.

At the end of each year I make a lump sum payment on the principal equal to the amount I would have paid had it been a traditional mortgage.

I have no plans to use any of the equity in my house.

My investment is split 3 ways.

60% Blue chips with strong financials & dividends

currently 3 holdings but I used to have 4 - this can vary anywhere from 3-5 stocks depending on opportunities in the market. This is currently about 70% of my total portfolio now as I loaded up some more LEA as it has been consolidating.
LEA
TGT
MRVL

30% momentum trading with extremely tight stop losses to protect from downside. Some stocks I hold for a couple weeks, some a couple months, some even longer

10% options trading - mostly just long call buying during soft trading. I have 2022 JCI calls, Dec 2021 FEYE, 2022 AAPL, etc... I prefer far out so I'm not crushed by theta.

I also sell covered calls against all of my positions to generate extra premium and buy down my cost basis on the existing shares.

So an example to illustrate what I mean. I'll use pretend numbers to make it more simple.

Let's pretend my mortgage payment w/ principal would be $1000/m. For ease of example let's pretend that interest only payments would be $500/m . In this case I would only be paying $500/m on the interest and the other $500 that would have been paid to principal gets deposited into my brokerage account.

Sometimes I sit on the money waiting for an opportunity, sometimes I average down an existing investment, sometimes I make a new investment etc...

At the end of the year I would have deposited $6000 into my brokerage. So I look at my portfolio and decide what I want to liquidate. Maybe I'll take a loss on some things to offset capital gains elsewhere, sometimes I'll take profits or trim positions it really depends. I then transfer $6000 out of my brokerage and make a lump sum payment of that amount towards the principal of my loan.

Also, about the job questions. I work for a Fortune 100 company and there would have to be an apocalypse level event for me to lose my job (it's not even a thought in my head). I started as a full stack software engineer but I have experience with all kinds of languages and enterprise systems with management experience to boot. If there was some catastrophe and I somehow lost my current job it wouldn't take long to find a new one.
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

HomerJ wrote: Mon Jul 26, 2021 6:37 pm
SaucedUp wrote: Mon Jul 26, 2021 2:44 pm I have liquid assets worth 2-3 years worth of living expenses.
Are those liquid assets paying more than 2.71% with no chance of crashing?

If not, seems pretty dumb to pay 2.71% interest on that loan while you have liquid assets sitting there paying less.

If they are paying more, than I'm guessing there is a chance that money could drop in a crash, so you're not actually protected with 2-3 years of expenses.
So my asset mix isn't fully "liquid" in the traditional sense of the word. A little more than half of that is in stock so yes it could possibly be affected in the event of a crash. I have crypto which we can debate the true liquidity but it's liquid enough if I needed it. Mix in some other non traditional assets (art, sports cards, etc...)
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Re: How do y'all feel about interest only HELOCs

Post by galawdawg »

SaucedUp wrote: Tue Jul 27, 2021 6:48 am Seems like people are confused here.

I haven't borrowed any money against my house to invest.
Yep. I am confused. One of us doesn't understand what a HELOC is...
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

galawdawg wrote: Tue Jul 27, 2021 7:06 am
SaucedUp wrote: Tue Jul 27, 2021 6:48 am Seems like people are confused here.

I haven't borrowed any money against my house to invest.
Yep. I am confused. One of us doesn't understand what a HELOC is...
Ok, so maybe I am confused?

I buy my house, get a traditional mortgage. I convert my traditional into a HELOC which is now my primary loan with the same balance as the traditional was.

I CAN borrow against the equity in my house but I haven't and don't plan on it. Instead I'm taking advantage of the interest only and using lump sums to pay down the HELOC as my primary loan.

If it makes sense I can go back to a traditional mortgage.

Now this was all explained to me by the banker who did this so maybe I'm just dumb and didn't understand.
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Re: How do y'all feel about interest only HELOCs

Post by KingRiggs »

It sounds like you refinanced to an interest-only loan? With a HELOC you can tap when you wish? A HELOC is not a mortgage...
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

KingRiggs wrote: Tue Jul 27, 2021 8:28 am It sounds like you refinanced to an interest-only loan? With a HELOC you can tap when you wish? A HELOC is not a mortgage...
I guess we're getting really caught up in specific terminology here, probably my fault for not being specific enough. All of my loan paperwork says it is a HELOC. It is the primary loan against my house. For all intents and purposes it is the same as a traditional mortgage with more flexibility.

So to clarify: My primary loan for my house is a HELOC, I did not take out a HELOC as a "2nd mortgage" against my house.

I use the flexibility of the HELOC to invest the money I would have been paying towards principal for a year and then pay back that amount as a lump sum at the end of the year. If my portfolio gained more than the interest rate I reinvest that money and it compounds over time.
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KingRiggs
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Re: How do y'all feel about interest only HELOCs

Post by KingRiggs »

Home
Equity
Line
Of
Credit

HELOC

There is a misunderstanding on someone's part...
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

KingRiggs wrote: Tue Jul 27, 2021 8:49 am Home
Equity
Line
Of
Credit

HELOC

There is a misunderstanding on someone's part...
So then it's an interest-only loan with a HELOC attached, does that make you feel better?

The bank calls it a HELOC, it says HELOC on my loan documentation so I'll call it that. Whether you want to call it one or the other it makes absolutely no difference to the original post.
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KingRiggs
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Re: How do y'all feel about interest only HELOCs

Post by KingRiggs »

SaucedUp wrote: Tue Jul 27, 2021 8:56 am
KingRiggs wrote: Tue Jul 27, 2021 8:49 am Home
Equity
Line
Of
Credit

HELOC

There is a misunderstanding on someone's part...
So then it's an interest-only loan with a HELOC attached, does that make you feel better?

The bank calls it a HELOC, it says HELOC on my loan documentation so I'll call it that. Whether you want to call it one or the other it makes absolutely no difference to the original post.
Interest on a HELOC is only deductible if the funds are used for home improvement, vs mortgage interest which is deductible (with conditions).

So it does make a difference. Please consult your mortgage lender/banker to clarify.
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Re: How do y'all feel about interest only HELOCs

Post by Tom_T »

SaucedUp wrote: Tue Jul 27, 2021 8:36 am So to clarify: My primary loan for my house is a HELOC, I did not take out a HELOC as a "2nd mortgage" against my house.
It's not a second mortgage, but your house is the collateral, so if for some reason disaster strikes and you can't make the payments, you could lose your house. I know it seems unlikely, and it probably is -- but it's not impossible.

Also, if you were to refinance your mortgage elsewhere, you will find that having a HELOC at a different bank adds some headache to the process. Been there, done that, more than once.

I've had both home equity loans and HELOCs, and the interest deduction went away a couple of years back.
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

KingRiggs wrote: Tue Jul 27, 2021 9:38 am
SaucedUp wrote: Tue Jul 27, 2021 8:56 am
KingRiggs wrote: Tue Jul 27, 2021 8:49 am Home
Equity
Line
Of
Credit

HELOC

There is a misunderstanding on someone's part...
So then it's an interest-only loan with a HELOC attached, does that make you feel better?

The bank calls it a HELOC, it says HELOC on my loan documentation so I'll call it that. Whether you want to call it one or the other it makes absolutely no difference to the original post.
Interest on a HELOC is only deductible if the funds are used for home improvement, vs mortgage interest which is deductible (with conditions).

So it does make a difference. Please consult your mortgage lender/banker to clarify.
Appreciate the insight, that was something I didn't know, but I also don't do my taxes. I will pose the question to my accountant.

I still don't think in my case the amount of interest I would be able to deduct would offset the interest rate savings vs traditional paired with potential portfolio gains.
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Re: How do y'all feel about interest only HELOCs

Post by galawdawg »

SaucedUp wrote: Tue Jul 27, 2021 8:56 am
KingRiggs wrote: Tue Jul 27, 2021 8:49 am Home
Equity
Line
Of
Credit

HELOC

There is a misunderstanding on someone's part...
So then it's an interest-only loan with a HELOC attached, does that make you feel better?

The bank calls it a HELOC, it says HELOC on my loan documentation so I'll call it that. Whether you want to call it one or the other it makes absolutely no difference to the original post.
:oops:

No offense OP but this is Bogleheads....Investing Advice Inspired by Jack Bogle. You begin a thread on the day you join asking what we think about using a HELOC to fund your options trading and swing trading. When Bogleheads reply to that question, you argue why your approach is sound and justified.

You justify it, in part, by stating you have two to three years of living expenses in liquid assets. As it turns out, you have to further explain that your asset mix isn't really fully "liquid" in the "traditional sense of the word" and that, despite your use of a HELOC (which is debt secured by your home, just like a mortgage), you haven't really "borrowed" money against your house.

And in describing your "investments", there isn't a single one of those that is consistent with the investing philosophy that is central to this forum. Are you trying to convince those of us who subscribe to the investment wisdom of Jack Bogle that we are wrong? Are you here to learn how to implement some of the Bogleheads investing philosophy? Or are you simply endeavoring to inspire debate about how you are borrowing and investing?

Investing is a personal decision and if you are happy with the decisions you have made, congratulations! While I believe the Bogleheads approach is the wisest approach, I understand that not everyone agrees and you appear solidly in that camp. I certainly don't want to make anyone to feel unwelcome, but I think I am missing the point of this thread. So the question I have is what are you seeking from other Bogleheads as a result of what you have posted here? How is it actionable?
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

galawdawg wrote: Tue Jul 27, 2021 9:49 am
SaucedUp wrote: Tue Jul 27, 2021 8:56 am
KingRiggs wrote: Tue Jul 27, 2021 8:49 am Home
Equity
Line
Of
Credit

HELOC

There is a misunderstanding on someone's part...
So then it's an interest-only loan with a HELOC attached, does that make you feel better?

The bank calls it a HELOC, it says HELOC on my loan documentation so I'll call it that. Whether you want to call it one or the other it makes absolutely no difference to the original post.
:oops:

No offense OP but this is Bogleheads....Investing Advice Inspired by Jack Bogle. You begin a thread on the day you join asking what we think about using a HELOC to fund your options trading and swing trading. When Bogleheads reply to that question, you argue why your approach is sound and justified.

You justify it, in part, by stating you have two to three years of living expenses in liquid assets. As it turns out, you have to further explain that your asset mix isn't really fully "liquid" in the "traditional sense of the word" and that, despite your use of a HELOC (which is debt secured by your home, just like a mortgage), you haven't really "borrowed" money against your house.

And in describing your "investments", there isn't a single one of those that is consistent with the investing philosophy that is central to this forum. Are you trying to convince those of us who subscribe to the investment wisdom of Jack Bogle that we are wrong? Are you here to learn how to implement some of the Bogleheads investing philosophy? Or are you simply endeavoring to inspire debate about how you are borrowing and investing?

Investing is a personal decision and if you are happy with the decisions you have made, congratulations! While I believe the Bogleheads approach is the wisest approach, I understand that not everyone agrees and you appear solidly in that camp. I certainly don't want to make anyone to feel unwelcome, but I think I am missing the point of this thread. So the question I have is what are you seeking from other Bogleheads as a result of what you have posted here? How is it actionable?
I enjoy learning about all types of investment philosophy. Even if I don't personally agree with 99.99% of what I see here even it makes me a more well rounded investor. I've already learned some cool stuff I will probe more on.

Plus, maybe someone here can learn something that I have to share.

I enjoy sharing my opinion and reading the opinion of others. Nothing but love and respect here from me.
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Re: How do y'all feel about interest only HELOCs

Post by namajones »

galawdawg wrote: Mon Jul 26, 2021 3:02 pm Bad idea. That's how I feel, can't speak for everyone else here.
Agree.
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Re: How do y'all feel about interest only HELOCs

Post by KlangFool »

OP,

Please make sure that if your house's market value drop by 50% and/or you lose your job, the bank can cancel your HELOC and ask you to pay back the loan IMMEDIATELY. Aka, please check the term and condition of the HELOC carefully.

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celia
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Re: How do y'all feel about interest only HELOCs

Post by celia »

SaucedUp wrote: Mon Jul 26, 2021 2:39 pm Bought the house Feb 2019 for 192 with 180 in a traditional 30 year. After the 1 year was up I had it reappraised for refi and they valued it at 242 and gave me a 2.71% on a 5yr interest only HELOC.
So, you bought a house for $192K and now ‘only’ owe, say, $220K? How is that ‘paying it off’?

Whenever someone refinances and gets a new loan for more than their previous outstanding balance or resets the clock to a longer term, they are going backwards, in my book.
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

celia wrote: Tue Jul 27, 2021 10:06 am
SaucedUp wrote: Mon Jul 26, 2021 2:39 pm Bought the house Feb 2019 for 192 with 180 in a traditional 30 year. After the 1 year was up I had it reappraised for refi and they valued it at 242 and gave me a 2.71% on a 5yr interest only HELOC.
So, you bought a house for $192K and now ‘only’ owe, say, $220K? How is that ‘paying it off’?

Whenever someone refinances and gets a new loan for more than their previous outstanding balance or resets the clock to a longer term, they are going backwards, in my book.
No, I bought it for 192, only financed a little over 180. Paid some of the principal during the 1st year holding the loan. I refinanced and the house was reappraised at 242 which put me under the 80% LTV threshold at the bank. The total amount that was financed was like 180 or whatever the original loan balance was. At the end of each year I make a lump sum payment on the loan balance.
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oldcomputerguy
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Re: How do y'all feel about interest only HELOCs

Post by oldcomputerguy »

This topic is now in the Personal Finance forum (home financing).
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HomerJ
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Re: How do y'all feel about interest only HELOCs

Post by HomerJ »

SaucedUp wrote: Tue Jul 27, 2021 10:09 am
celia wrote: Tue Jul 27, 2021 10:06 am
SaucedUp wrote: Mon Jul 26, 2021 2:39 pm Bought the house Feb 2019 for 192 with 180 in a traditional 30 year. After the 1 year was up I had it reappraised for refi and they valued it at 242 and gave me a 2.71% on a 5yr interest only HELOC.
So, you bought a house for $192K and now ‘only’ owe, say, $220K? How is that ‘paying it off’?

Whenever someone refinances and gets a new loan for more than their previous outstanding balance or resets the clock to a longer term, they are going backwards, in my book.
No, I bought it for 192, only financed a little over 180. Paid some of the principal during the 1st year holding the loan. I refinanced and the house was reappraised at 242 which put me under the 80% LTV threshold at the bank. The total amount that was financed was like 180 or whatever the original loan balance was. At the end of each year I make a lump sum payment on the loan balance.
The whole thing seems mostly pointless to me. It's a pretty small amount of money, and you have a short window to invest it. Making a large principal payment at the end of year means the money from months 10-12 is only being invested for 0-3 months.

If it makes you happy to tinker like this, go for it I guess.

Most of us here try to keep investing simple.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

HomerJ wrote: Tue Jul 27, 2021 10:16 am
SaucedUp wrote: Tue Jul 27, 2021 10:09 am
celia wrote: Tue Jul 27, 2021 10:06 am
SaucedUp wrote: Mon Jul 26, 2021 2:39 pm Bought the house Feb 2019 for 192 with 180 in a traditional 30 year. After the 1 year was up I had it reappraised for refi and they valued it at 242 and gave me a 2.71% on a 5yr interest only HELOC.
So, you bought a house for $192K and now ‘only’ owe, say, $220K? How is that ‘paying it off’?

Whenever someone refinances and gets a new loan for more than their previous outstanding balance or resets the clock to a longer term, they are going backwards, in my book.
No, I bought it for 192, only financed a little over 180. Paid some of the principal during the 1st year holding the loan. I refinanced and the house was reappraised at 242 which put me under the 80% LTV threshold at the bank. The total amount that was financed was like 180 or whatever the original loan balance was. At the end of each year I make a lump sum payment on the loan balance.
The whole thing seems mostly pointless to me. It's a pretty small amount of money, and you have a short window to invest it. Making a large principal payment at the end of year means the money from months 10-12 is only being invested for 0-3 months.

If it makes you happy to tinker like this, go for it I guess.

Most of us here try to keep investing simple.
I'm hoping that after a few years it really starts compounding and growing exponentially.

I do enjoy the tinkering and willing to take a small gamble for some big returns.

Appreciate the insight from everyone
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HomerJ
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Re: How do y'all feel about interest only HELOCs

Post by HomerJ »

SaucedUp wrote: Tue Jul 27, 2021 10:21 am I'm hoping that after a few years it really starts compounding and growing exponentially.

I do enjoy the tinkering and willing to take a small gamble for some big returns.

Appreciate the insight from everyone
It won't compound much at all if you pay off the lump sum at the end of the year each year.

You have zero need for gambling if you are in a high-paying industry.

But if you enjoy it, go ahead, but it's basically just a game for you, not investing.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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SaucedUp
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Re: How do y'all feel about interest only HELOCs

Post by SaucedUp »

HomerJ wrote: Tue Jul 27, 2021 10:31 am
SaucedUp wrote: Tue Jul 27, 2021 10:21 am I'm hoping that after a few years it really starts compounding and growing exponentially.

I do enjoy the tinkering and willing to take a small gamble for some big returns.

Appreciate the insight from everyone
It won't compound much at all if you pay off the lump sum at the end of the year each year.

You have zero need for gambling if you are in a high-paying industry.

But if you enjoy it, go ahead, but it's basically just a game for you, not investing.
That money gets pooled with all of my other investment money so it does help compound the overall, but I understand what you're saying
mervinj7
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Re: How do y'all feel about interest only HELOCs

Post by mervinj7 »

SaucedUp wrote: Tue Jul 27, 2021 10:21 am I'm hoping that after a few years it really starts compounding and growing exponentially.

I do enjoy the tinkering and willing to take a small gamble for some big returns.

Appreciate the insight from everyone
The other option is just use leveraged ETFs directly. Check out the thread on Hedgefundie's excellent adventure.
Invictus002
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Re: How do y'all feel about interest only HELOCs

Post by Invictus002 »

SaucedUp wrote: Tue Jul 27, 2021 6:48 am Seems like people are confused here.

I haven't borrowed any money against my house to invest. Rather than paying principal and interest each month, I only pay interest and the money that would have paid principal gets invested.

At the end of each year I make a lump sum payment on the principal equal to the amount I would have paid had it been a traditional mortgage.

I have no plans to use any of the equity in my house.

My investment is split 3 ways.

60% Blue chips with strong financials & dividends

currently 3 holdings but I used to have 4 - this can vary anywhere from 3-5 stocks depending on opportunities in the market. This is currently about 70% of my total portfolio now as I loaded up some more LEA as it has been consolidating.
LEA
TGT
MRVL

30% momentum trading with extremely tight stop losses to protect from downside. Some stocks I hold for a couple weeks, some a couple months, some even longer

10% options trading - mostly just long call buying during soft trading. I have 2022 JCI calls, Dec 2021 FEYE, 2022 AAPL, etc... I prefer far out so I'm not crushed by theta.

I also sell covered calls against all of my positions to generate extra premium and buy down my cost basis on the existing shares.

So an example to illustrate what I mean. I'll use pretend numbers to make it more simple.

Let's pretend my mortgage payment w/ principal would be $1000/m. For ease of example let's pretend that interest only payments would be $500/m . In this case I would only be paying $500/m on the interest and the other $500 that would have been paid to principal gets deposited into my brokerage account.

Sometimes I sit on the money waiting for an opportunity, sometimes I average down an existing investment, sometimes I make a new investment etc...

At the end of the year I would have deposited $6000 into my brokerage. So I look at my portfolio and decide what I want to liquidate. Maybe I'll take a loss on some things to offset capital gains elsewhere, sometimes I'll take profits or trim positions it really depends. I then transfer $6000 out of my brokerage and make a lump sum payment of that amount towards the principal of my loan.

Also, about the job questions. I work for a Fortune 100 company and there would have to be an apocalypse level event for me to lose my job (it's not even a thought in my head). I started as a full stack software engineer but I have experience with all kinds of languages and enterprise systems with management experience to boot. If there was some catastrophe and I somehow lost my current job it wouldn't take long to find a new one.
Smart people make 20% to 30% of the borrowed money. A smart full stack engineer can figure how to.
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