What to do next time for rising interest rates, e.g., no fee HELOC

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harikaried
Posts: 2613
Joined: Fri Mar 09, 2012 2:47 pm

What to do next time for rising interest rates, e.g., no fee HELOC

Post by harikaried »

With interest rates increasing, we were fortunate to have opened a PenFed 5/5 equity line of credit several years ago still at 3.x% (even after the the first 5-year adjustment and had no application/closing costs nor annual fees). We can still draw on that instead of borrowing money at current rates.

Today, I noticed that PenFed new HELOCs now have an $99/yr annual fee while Bank of America has no fees but variable rates near 6%. So it's probably too late to do something now, but in the future if rates drop and lenders cover all the fees, it seems like it would be beneficial to open up these free lines of credit even if there is no immediate need to access that money.

Are there other things people could do in preparation for next time?
SnowBog
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Joined: Fri Dec 21, 2018 10:21 pm

Re: What to do next time for rising interest rates, e.g., no fee HELOC

Post by SnowBog »

I remind myself that people seem to be as wrong about guessing the direction of interest rate changes as they are timing the market... And since I've given up the idea of trying to time the market, I've equally given up the idea of trying to guess the direction of interest rates.

As such - I don't do anything "just because".

That said, I'm opportunistic.

For example, if I was in a position to need a HELOC (or refinance a home loan), doing so when rates are lower and/or refinancing as rates go lower makes sense. (But admittedly, if I was in a position to need one now - I'd just get one at current rates - as I don't know if they'll go up or down... If they go up, I'll have what I need at a lower rate. If they go down, when they go down enough to justify it, I can always refinance.)

Conversely, I "front loaded" 2 years extra of I Bonds this year, as the current interest rates are appealing. I maintained my overall AA, and simply shifted other "fixed income" funds into I Bonds. And I probably would have done this had my plan not called for "extra" years of I Bonds to be purchased before we retired anyway. (If future rates go up - I'll get those higher rates. And if future rates go down, we'll I planned on holding I Bonds anyway - regardless of their rates.)
Topic Author
harikaried
Posts: 2613
Joined: Fri Mar 09, 2012 2:47 pm

Re: What to do next time for rising interest rates, e.g., no fee HELOC

Post by harikaried »

SnowBog wrote: Thu Jul 07, 2022 6:10 pmif I was in a position to need a HELOC (or refinance a home loan), doing so when rates are lower and/or refinancing as rates go lower makes sense
Looking back at the history of our HELOC, it seemed like PenFed was specially doing these with no fees: upfront or ongoing. So that's probably why we got it and didn't even use it for 3 years (we had no immediate need), and when we did use it, it was repaid within a few months. Back then it provided some extra liquidity while now that rates are higher, it provides cheaper access to cash compared to new debt.

I suppose the key aspect is if there are things people can do with basically no cost that provides more options for later. To be clear, in our case we've had the HELOC for 8 years now, so there can be a long lead time before actually getting benefits, so that's why no/low costs is important.
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