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HELOC question
Posted on 7/19/18 at 5:16 pm
Posted on 7/19/18 at 5:16 pm
I have a heloc, current balance is 37k.
Interest rate is 6.5%
YTD interest paid = $1300
Total interest paid = $6600
Loan Origination = Oct. 2013
I make (2) payments per month @ $250.00 each. Essentially one payment is 100% interest and the other is 100% principal
I have the cash to pay this in full.
My question is should i continue paying as I am or should I just pay it off in full. As far as the cash I have on hand.. here is how it’s allocated
20k in a Robin Hood day trade account earning about 16%
10k in a money market
10k in a savings making nothing
I believe the heloc interest payments are tax deductible (correct me if I’m wrong) and if that’s the case.. what are the arguments for and against paying the heloc off in full?
Interest rate is 6.5%
YTD interest paid = $1300
Total interest paid = $6600
Loan Origination = Oct. 2013
I make (2) payments per month @ $250.00 each. Essentially one payment is 100% interest and the other is 100% principal
I have the cash to pay this in full.
My question is should i continue paying as I am or should I just pay it off in full. As far as the cash I have on hand.. here is how it’s allocated
20k in a Robin Hood day trade account earning about 16%
10k in a money market
10k in a savings making nothing
I believe the heloc interest payments are tax deductible (correct me if I’m wrong) and if that’s the case.. what are the arguments for and against paying the heloc off in full?
6
Posted on 7/19/18 at 5:21 pm to MorgusTheMagnificent
quote:DIdn't the trump tax plan stop the interest deduction?
I believe the heloc interest payments are tax deductible (correct me if I’m wrong) and if that’s the case.. what are the arguments for and against paying the heloc off in full?
Posted on 7/19/18 at 6:38 pm to MorgusTheMagnificent
First off, with the new tax law the interest is deductible provided you're using it for home improvements. It used to be simply deductible no matter what. My personal opinion is that the difference is going to be hard to enforce but that's up to you.
The math here is pretty simple - if you don't deduct then you're getting a guaranteed 6.5% return. That's actually quite good and I'd pay it off.
If you're in the 25% tax bracket and can deduct the interest, then your true rate is 4.875%. IMHO this is still high enough where paying it off is a good idea unless there are other reasons, for example the deduction keeps you under some kind of AGI threshold you'd like to stay under.
If you're in a higher tax bracket than that you probably can afford to pay for professional advice, and should.
BTW, your day trading account will not yield 16% forever. I've seen lots of day traders and to a man they do really well ... and then everything goes wrong. Usually it's some variation of Gambler's Ruin where he convinces himself that it's safe to bet bigger and bigger. At any rate, if it were possible to make 16% forever you can be sure Goldman Sachs would be doing it already.
The math here is pretty simple - if you don't deduct then you're getting a guaranteed 6.5% return. That's actually quite good and I'd pay it off.
If you're in the 25% tax bracket and can deduct the interest, then your true rate is 4.875%. IMHO this is still high enough where paying it off is a good idea unless there are other reasons, for example the deduction keeps you under some kind of AGI threshold you'd like to stay under.
If you're in a higher tax bracket than that you probably can afford to pay for professional advice, and should.
BTW, your day trading account will not yield 16% forever. I've seen lots of day traders and to a man they do really well ... and then everything goes wrong. Usually it's some variation of Gambler's Ruin where he convinces himself that it's safe to bet bigger and bigger. At any rate, if it were possible to make 16% forever you can be sure Goldman Sachs would be doing it already.
Posted on 7/19/18 at 7:01 pm to MorgusTheMagnificent
quote:
what are the arguments for and against paying the heloc off in full?
Well, you’ve create a false choice. Based on the info you’ve provided, I wouldn’t pay off the heloc, but I would recommend an escalated repayment plan. $37k at that interest rate is ugly and requires a much more aggressive tact.
You probably need to remove that bogus day trade account while you’re up and build a stable foundation of index funds. Then you can throw some of your $20k in savings toward that heloc and pay off the rest inside of 2 years.
Posted on 7/19/18 at 7:43 pm to MorgusTheMagnificent
Reshop your heloc for better rate
Posted on 7/20/18 at 1:05 pm to MorgusTheMagnificent
quote:
20k in a Robin Hood day trade account earning about 16%
Purely out of curiosity, how long have you been trading and how many trades per day/week do you average? What's your biggest drawdown to date? And do you really think that level of return is sustainable long term on that type of (risky) strategy? By the time we back out the HELOC interest, you're making less than 10%. Just seems like you're striking matches near a can of gas.
Basically, $20K of your HELOC is funding that day trading account. I wouldn't finance equity positions of any type (especially not day, options or futures trading) with a loan against my house. But that's just me. Also, most of your savings isn't really savings... it's also basically HELOC money - that's the net affect anyway. You really only have a net $3K in cash.
As far as the tax deduction of HELOC interest, at best, you're spending a dollar to save a quarter. Only when you compare that type of (necessary) financing against a non-deductible type of financing does it make sense to me. I have done and do employ leverage all the time on speculative investments - but I don't use my primary residence as collateral.
If it was me, I'd devise a plan to get that HELOC paid off ASAP. The main thing I'd keep is an emergency fund that wouldn't be touched except for a SHTF moment, and the rest of it would go toward wiping out as much of the HELOC as I could, with the rest paid off in short order.
Posted on 7/20/18 at 1:28 pm to MorgusTheMagnificent
quote:
Interest rate is 6.5%
quote:
20k in a Robin Hood day trade account earning about 16%
These two things are absurd. Is your credit terrible? Because 6.5% is a pretty terrible rate especially for a 2013 loan when rates were dirt cheap. I had 1.99% not too long ago. I'm sure its closer to 4% now but come on with 6.5%. Heck refinance your house or something and roll it in with that high of a rate. You are paying $2500/ year for a $37k loan. You could have refinanced your mortgage at 3.5% and been much better off by now.
Secondly, talking about a 16% rate of return is absurd. You are either full of it or a brand new investor. Either way, that won't continue. So you need to be very very careful.
If you don't pay off your HELOC, you should at least refinance.
ETA: Ok I forgot prime was so high right now so its looking like 5% or 5.5%. But still I'd at least refinance. A lot of HELOC's are free to open.
This post was edited on 7/20/18 at 1:36 pm
Posted on 7/20/18 at 3:45 pm to foshizzle
quote:
First off, with the new tax law the interest is deductible provided you're using it for home improvements.
What if I'm using it for home improvements on a second house?
(eta: nvm, I did some research and found the answer to my underlying questions)
This post was edited on 7/20/18 at 3:52 pm
Posted on 7/21/18 at 6:36 am to Chad504boy
quote:
Reshop your heloc for better rate
Yeah you should be at prime plus .5 at the most
Posted on 7/21/18 at 3:29 pm to Jag_Warrior
quote:
how long have you been trading and how many trades per day/week do you average?
Opened that account 2 years ago.. make about 5-10 trades a day
quote:
do you really think that level of return is sustainable long term on that type of (risky) strategy?
Well, yes. Otherwise I wouldn’t be doing it. Based on the replies in this thread, I’m starting to rethink that
quote:
Is your credit terrible?
Hovers between 780-800
quote:
Because 6.5% is a pretty terrible rate especially for a 2013 loan
Rate is variable. I’m using Iberia Bank, maybe the rate has something to do with the lender being a smaller outfit?
After reading some responses, particularly Jag.. I’m leaning towards paying it off. Or at the minimum, paying 20k or so and then going after the rest with large monthly payments.
Some other pertinent info that I need to consider.. wife is pregnant with kids 3&4. I’m obssessing about having cash in hand for a rainy day. I’m about to buy my wife a van at 35k. Other than my mortgage (120k) the only other debt we have is my truck, 9k
Thanks all for the feedback so far
Posted on 7/21/18 at 4:16 pm to MorgusTheMagnificent
How much is owed on the Heloc?
Are you financing the new or used van?
If my math is correct you owe payments on your truck, the Heloc, and about to be another vehicle is that correct ?
Are you financing the new or used van?
If my math is correct you owe payments on your truck, the Heloc, and about to be another vehicle is that correct ?
Posted on 7/22/18 at 8:05 am to Double Oh
quote:
How much is owed on the Heloc?
$37,267.45
quote:
Are you financing the new or used van?
Yes, 1.9%. Will put down $9000.00
I owe payments on Heloc, mortgage & (soon to be) 2 vehicles
Posted on 7/22/18 at 10:20 am to Oenophile Brah
Pay it off if you can. Nothing like being debt free. Put what you were putting towards the loan afterwards in savings. Don't get yourself in a bind where you need the HELOC again. Your savings will sky rocket.
Posted on 7/22/18 at 4:19 pm to MorgusTheMagnificent
quote:
Yes, 1.9%. Will put down $9000.00
I owe payments on Heloc, mortgage & (soon to be) 2 vehicles
Seriously you need to pay off the Heloc and a vehicle or pay off 2 vehicles. You paying too many notes.
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