HELOC low now -- pay extra or hoard cash?

mahatmacat1December 14, 2008

We have a HELOC that's at very favorable rates (prime minus .75) and I'm wondering what folks on this list thing: should we be taking advantage of the lower rate to pay down the capital and raise the equity in our home? Or should we take advantage of the lower rate to make lower payments and keep available cash around? We have a cushion, although it's not as cushy as it was about two months ago...TIA for any thoughts.

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dave_donhoff

Hi Flyleft,

should we be taking advantage of the lower rate to pay down the capital and raise the equity in our home?

?????? HUH????????

How can you take advantage of a lower HELOC rate (supposedly by drawing on it,) AND SIMULTANEOUSLY increase the equity accrued in the real estate value of your portfolio?

When you draw on the HELOC, you are transferring equity from your real estate OUTWARDS to some other account... no?

Or should we take advantage of the lower rate to make lower payments and keep available cash around?

If you are the financially mature type, I am a big proponent of optimizing your liquidity and keeping your equity value more safely seperated from your illiquid assets (especially real estate.)

Prime is currently at 4.0%... and as wild as it sounds, many are predicting the Fed to drop it again as much as an additonal THREE QUARTERS OF A POINT this coming week... to 3.25%.

After your 3/4 slice-away, you're pre-tax costs of leverage on that HELOC will be just 2.5%.

If you combined federal & state marginal tax bracket is, say, 25%... that would make your post-tax cost of marginal leverage just 1.875%

Even if looked at as the insurance costs of cash-on-hand, that is a very low premium for safety.

Luck,
Dave Donhoff
Leverage Planner

    Bookmark   December 14, 2008 at 5:50PM
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mahatmacat1

Um, no, I didn't mean by drawing on it.

Wrong assumption.

Thanks for all the question marks, though. Made your reply pretty much unreadable for all the aggression.

    Bookmark   December 14, 2008 at 5:52PM
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dave_donhoff

That wasn't aggression, that was very sincere confusion.

Thanks for adding absolutely no clarity to your previous muddle.

Dave

    Bookmark   December 14, 2008 at 10:18PM
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mahatmacat1

Wow, guess this is one of those Gweb fora that deserves its reputation. This forum really isn't as friendly as others here, is it?

You know, there are other more polite (or should I say "polite" full stop) ways to ask for clarification besides the way you posted, but since you seem to think that your reply was appropriate, I'll just leave and find a place where people really do know how to show common courtesy to each other.

    Bookmark   December 15, 2008 at 1:04AM
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rivkadr

Wow. I fail to see what was rude or aggressive about Dave's post. I see confusion, but that's it -- and then he went on to helpfully explain several other things in his post. Gosh darn, that's so rude of him!!

So far, the only not showing common courtesy seems to be you, flyleft.

    Bookmark   December 15, 2008 at 12:28PM
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nycefarm_gw

Dave is always helpful and surely never intends rudeness...
Sorry you were offended, it's easy to interpret incorrectly, but he know what he is talking about.
Why don't you try again without the attitude?

    Bookmark   December 15, 2008 at 2:49PM
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joyfulguy

Dave's a helpful, courteous guy ... has a good deal of useful knowledge, that he freely shares.

I didn't think his reply out of line ... and was surprised to hear the response.

Also - please cut Dave some slack - his kid just died in its crib a couple of weeks ago.

ole joyful

    Bookmark   December 16, 2008 at 1:04AM
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